Vertical control in newly regulated economies: lessons from the theory and practice of RPM

Abstract

This paper develops conceptual arguments to analyze RPM from the antitrust viewpoint. Through a general model, we conclude that minimum RPM in general would reduce consumer's price. Consequently, it could harm consumers only under very special circumstances, that can be checked by antitrust authorities in a very simple way. Thus, the paper suggests that the influence of the USA antitrust legislation and tradition in LDCs, and particularly in Chile, the country with the most advanced antitrust practice in less developed countries, has unnecessarily restricted franchising. Not surprisingly, though, the application of such dogmatic vision has created ways to by-pass the regulation, like vertical integration, that may be legal, but create cost for distribution channels.