Usefulness of resale price maintenance under different levels of sales-effort cost and system-parameter uncertainties

Abstract

This paper on "resale price maintenance" (RPM) has three main parts:(i)Using a simple and parsimonious model, we show that even with only one retailer, a "supplier" or "manufacturer" (hereafter "Manu") should impose minimum-RPM under some circumstances but maximum-RPM in others. These two sets of circumstances are defined by a very simple formula.(ii)While most earlier RPM models assume that the decision makers have deterministic knowledge of the system parameters, we present formulations and solution procedures for optimizing RPM schemes when Manu is uncertain about a system parameter's value.(iii)We show that if Manu has to estimate certain key system parameters under uncertainties, then in many situations RPM rapidly becomes unattractive even when these uncertainties are still quite low. This constitutes one often-applicable explanation why RPM is not as widely used as it should be theoretically. © 2009 Elsevier B.V. All rights reserved.