CHAPTER 16 OLIGOPOLY 369 have been used to condemn some business practices whose effects are not obvious. Here we consider three examples. Resale Price Maintenance One example of a controversial business practice is resale price maintenance, also called fair trade. Imagine that Superduper Electronics sells VCRs to retail stores for $300. If Superduper requires the retailers to charge customers $350, it is said to engage in resale price maintenance. Any retailer that charged less than $350 would have violated its contract with Superduper. At first, resale price maintenance might seem anticompetitive and, therefore, detrimental to society. Like an agreement among members of a cartel, it prevents the retailers from competing on price. For this reason, the courts have often viewed resale price maintenance as a violation of the antitrust laws. Yet some economists defend resale price maintenance on two grounds. First, they deny that it is aimed at reducing competition. To the extent that Superduper
This is the end of the preview. Sign up
access the rest of the document.