The effects of advertising on resale price maintenance

This research combines the market power and market competition perspectives on advertising, under the framework of a generalized theoretical model in minimum resale price maintenance (RPM), in order to investigate the effects of advertising on RPM using the real options approach. The effects of advertising on retail price will impact the value of RPM, further, influence the incentive of manufacturers to impose RPM. Through brand penetration and promotional pricing effects, advertising is likely to influence RPM under the condition of retail price competition. When the brand penetration effect is dominant, advertising will discourage manufacturers from imposing RPM. Advertising will encourage manufacturers to impose RPM when the promotional pricing effect is dominant. RPM not only substitutes advertising, but also complements advertising.