On the equivalence of resale price maintenance and quantity restrictions

When demand is known with certainty, there is a clear mapping between a monopolist's pricing and output decisions. This suggests an equivalence between a monopolist manufacturer specifying a minimum (maximum) retail price, and imposing a maximum (minimum) quantity on its retailers. This paper shows that while the effect of maximum RPM can always be replicated by an appropriate quantity floor, the minimum RPM outcome cannot always be replicated by an appropriately-chosen quantity ceiling. As such, the analysis provides one reason that manufacturers will choose a price floor rather than quantity ceiling, even though a quantity ceiling would appear to lead to lower monitoring costs. (C) 1999 Elsevier Science B.V. All rights reserved.