Review of Industrial Organization
13: 57–84, 1998.
1998 Kluwer Academic Publishers. Printed in the Netherlands.
The Law and Economics of Resale Price
FRANK MATHEWSON and RALPH WINTER
Institute for Policy Analysis, and Department of Economics, University of Toronto, Toronto, ON,
Canada M5S 3G6
This paper reviews the economics of resale price maintenance and critiques select-
ed Canadian cases since the passage of the Competition Act in 1986. Resale price
maintenance (RPM) represents an area of active research in economics and contin-
ued controversy in competition law. In some respects, the US law has evolved to
a more liberal treatment of contractual restrictions such as RPM, reﬂecting in part
new learning on the explanations and effects of these restrictions. In Canada, the
number of RPM cases brought by the Canadian Competition Bureau (the Bureau)
has declinedfrom the period 1980–1985, althoughthe real value of the correspond-
ing ﬁnesfor those found guilty of the practice has increased:in 1980–85,there were
58 cases as compared to the period 1990–95 when there were 12 cases; the corre-
sponding ﬁnes increasedfrom $37,480 to $108,080.
Some scholarshave called for
per se legality of vertical restraints but the appropriate antitrust treatment of these
restraints remains unresolved. This symposium offers an opportunity to review the
evidence on their treatment under Canadian law and to compare jurisprudence in
Canada with that of the U.S. and other jurisdictions.
In developing an economic framework for a synthesis of vertical restraints, a
naturalstartingpointis the benchmarkofa simple, textbookcontractforthe transfer
of a product. The simplest contract in a wholesale market would transfer to the
retailer of a product a speciﬁc quantity of the product, which the retailer could then
sell at any price and to any customer without limitations. The entire ownership of
the product, i.e., the bundle of property rights associated with the product, would
be transferred. The contract would allow the retailer to purchase any quantity at
the uniform price posted by the seller.
If the seller and the buyer are both ﬁrms in perfectly competitive and frictionless
markets, then in fact this simple contract is optimal: the seller and retailer could not
The authors acknowledge the helpful comments from an anonymous referee.
Taken from W. T. Stanbury (1996), pp. 60–61 and Tables 12 and 15.