On the equivalence of resale price maintenance and quantity restrictions

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