Edited by Frank Hoy, Rozenn Perrigot and Andrew Terry
Chapter 13: Resale price maintenance in franchising: market coverage, company-owned stores, and retailer dependence
Following the Leegin (2007) and Khan (1997) decisions, the consequences of the legalization of both minimum and maximum resale price maintenance (RPM) were expected to be significant on franchising, dealer networks, or any distribution system where retailers were free to establish their prices independently of supplier dictates. Most importantly for RPM, the legalization allowed the supplying firm to terminate an offending retailer. RPM is considered a ‘vertical control’ of retailer pricing, and given this additional authority, could increase its use as a substitute for vertical integration by the supplier. Internationally, the United States is alone with regard to its acceptance of RPM, and other nations should take interest since this is a notable shift toward supplier authority and its lack of significant outcomes. This chapter briefly reviews the background cases regarding RPM, models the gross margins relevant to forward integration and RPM, and provides data on four different industries where combinations of franchisees, independent retailers, and company-owned stores coexist to provide market coverage. Propositions regarding the conditions where RPM would be anticipated are stated.
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