Frank Mathewson

The Law and Economics of Resale Price Maintenance

This paper reviews the economics of resale price maintenance and critiques selected Canadian cases since the passage of the Competition Act in 1986. Resale price maintenance (RPM) represents an area of active research in economics and continued 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 declined from the period 1980–1985, although the real value of the corresponding fines for 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 corresponding fines increased from

Tying as a Response to Demand Uncertainty

37,480 to

Stability in the Absence of Deposit Insurance: The Canadian Banking System, 1890-1966

108,080.1 Some scholars have 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 natural starting point is the benchmark of a simple, textbook contract for the 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

Agency Contracts with Long‐Term Customer Relationships

This article examines requirements tying of a competitively supplied good to a monopolized good. It expands the set of market conditions in which this instrument is known to be profitable. With heterogeneous, privately informed buyers, a firm can profit by tying two goods even when demands for the goods are price independent - providing the demands are stochastically dependent. We investigate the profitability of tying as a response to stochastic demand, as well as the effects of tying on prices and the extent of the market served.

On Vertical Restraints and the Law: A Reply

The Canadian banking system experienced a prolonged period of stability prior to the introduction of deposit insurance in 1967. Documenting the reasons for this stability provides important evidence in the debate over the impact of mandatory flat-rate deposit insurance. In this paper we use new archival data to refute recent claims that this stability resulted from an implicit deposit insurance scheme managed by Canadas largest banks and guaranteed by the federal government. We argue that the Canadian banking system was stable for two reasons. First, the absence of deposit insurance provided incentives for both prudence on the part of management, and monitoring by depositors and regulators. Second, the absence of unit banking and other regulatory barriers to competition facilitated efficient mergers which produced a relatively small number of well-managed banks. Copyright 1995 by Ohio State University Press.

TERRITORIAL RESTRICTIONS IN FRANCHISE CONTRACTS

In certain industries, sales agent contracts include provisions for sales commissions and clawbacks of commissions if clients are not retained. We show that contracts with these features arise in environments having up‐front selling costs recouped from ongoing sales; heterogeneous customers; limited agent access to capital markets; and imperfect commitment to long‐term contracts. We test the model using information on insurance sales agent contracts from New Zealand prior to and after bank entry into insurance sales. The evidence indicates that banks cream‐skimmed customers. We predict that this should reduce the values of sales commissions and clawbacks. The data support this prediction.

The Economics of Law Firms: A Study in the Legal Organization of the Firm

* In our 1984 article we characterize the vertical restraint contracts that harmonize the interests of downstream, monopolistically competitive retailers with those of an upstream producer. The potential list of restrictions includes resale price maintenance, quantity forcing, territorial protection, and fixed franchise fees. In his comment on this article Waterson (1988) takes issue with the substitutability of territorial restraints and resale price maintenance. Here, we discuss this substitutability and associated empirical and legal issues.