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Resale Price Maintenance and Resale Prices: Paying to Support Competition in the Market for Heavy Trucks

Expectations about the price effects of resale price maintenance (RPM) must play a central role in evaluating its impact. But those expectations must account for the behavior of a supplier that chooses to compensate its dealers for their promotional efforts through protected margins higher than those that would prevail under unrestricted intrabrand competition. Interbrand competition will pressure such a supplier to reduce the wholesale price it charges dealers. This article illustrates this process by examining two cases involving the sale of heavy trucks. Virtually identical pricing policies designed to compensate only those dealers that expanded brand sales were treated differently by the courts depending on whether the policy was interpreted as price discrimination or RPM. This article shows that RPM was implemented to enhance interbrand competition and that its price effects are mismeasured when a focus solely on intrabrand competition ignores the feedback on supplier policy that such competition entails.