Resale-below-cost (RBC) laws that serve to protect high-price, low-volume retailers from low price, high-volume retailers, are a battleground between contrasting visions of competition policy. The claimed benefits of RBC laws for consumers appear to be: i) already provided by other laws, ii) economically dubious, and iii) empirically unsupported. RBC laws do not prevent declines in the market share of high price, low volume retailers. Nations without RBC laws continue to have a variety of retailers including small, localized retailers. Concerns about the costs of RBC laws for consumers appear to be economically sound and empirically supported. First and foremost, RBC laws are likely to result in consumers paying higher prices. RBC laws can arbitrarily increase costs of low-price, high-volume retailers. They are also likely to discourage price competition by undermining consumer incentives to search for bargain prices. When consumers actively search for bargains, competition generally increases because demand is more sensitive to price changes. RBC laws are associated with slower economic growth and higher unemployment. They can create excessive incentives for firms to vertically integrate. RBC laws are difficult to enforce effectively and equitably. This can lead to high administrative costs and regulatory risk. Given the weak evidence on benefits and the strong evidence on costs to consumers of RBC laws, nations have ample justification to reexamine these laws through a sunset review process.
Resale Below Cost Laws and Regulations