Vertical Price Restraints

a) Consider the case in which the retailer chooses the retail price but does not provide retail services. Show that a non-integrated manufacturer can use either RPM or two-part tariffs to achieve the vertically integrated level of profits both for the case in which there are competitive retailers and in the case where the retailer is a monopolist.

b) Consider the case in which the retailer chooses the retail price and the level of retail services. Show that a non-integrated manufacturer can use two-part tariffs to achieve the vertically integrated monopoly profit when the retailer is a monopolist but not when the retailers are competitive. Show that the non-integrated manufacturer can use RPM to achieve the vertically integrated profit when the dealers are competitive.

c) Consider the case in which the retailers are competitive and have to purchase inventories prior to the state of demand being known. Explain the two cases which can arise if the non-integrated manufacturer is not permitted to use RPM. Explain the profit and welfare consequences of allowing the non-integrated manufacturer to use RPM in both cases.