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Principles of Economics- Mankiw (5th) 359

Principles of Economics- Mankiw (5th) 359 - CHAPTER 16 O L...

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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
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