Empirical evidence is mixed about the real-life effect of minimum resale price maintenance(RPM), a contract from manufacturers that requires retailers to resell the products at or above a price set by the manufacturers. This paper adds to empirical evidence by examining whether RPM is justified in the Japanese publishing industry by inducing sufficient inventory orders from retailers when demand is uncertain, as documented in Deneckere et al. (1997) as a potential pro-competitive effect of RPM. We build up empirical models and analytically identify that the degree of demand uncertainty, market competition level, and the “advertising effect,” the effect of inventory to promote sales, are essential in justifying RPM. We then quantify the size of these factors in the market and conclu...[ Read more ]

Empirical evidence is mixed about the real-life effect of minimum resale price maintenance(RPM), a contract from manufacturers that requires retailers to resell the products at or above a price set by the manufacturers. This paper adds to empirical evidence by examining whether RPM is justified in the Japanese publishing industry by inducing sufficient inventory orders from retailers when demand is uncertain, as documented in Deneckere et al. (1997) as a potential pro-competitive effect of RPM. We build up empirical models and analytically identify that the degree of demand uncertainty, market competition level, and the “advertising effect,” the effect of inventory to promote sales, are essential in justifying RPM. We then quantify the size of these factors in the market and conclude that RPM is very likely to be justified in the Japanese publishing industry.