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Do MSRPs decrease prices?

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  • De los Santos, Babur
  • Kim, In Kyung
  • Lubensky, Dmitry

Abstract

The nature of manufacturer’s suggested retail prices (MSRPs) and whether they increase or decrease prices is poorly understood. We exploit a policy experiment in which a ban on MSRPs was imposed and then lifted a year later, and show that MSRPs decrease prices by 3.6 percent on average. There is no indication that MSRPs lowered prices by acting as binding price ceilings. Instead we find suggestive evidence that MSRPs are aimed at consumers, possibly providing a benchmark by which consumers can evaluate prices.

Suggested Citation

  • De los Santos, Babur & Kim, In Kyung & Lubensky, Dmitry, 2018. "Do MSRPs decrease prices?," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 429-457.
    • Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:429-457
    DOI: 10.1016/j.ijindorg.2018.02.008
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    • Babur De los Santos & In Kyung Kim & Dmitry Lubensky, 2013. "Do MSRPs Decrease Prices?," Working Papers 2013-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Do MRSPs (manufacturer suggested retail prices) have an impact on prices?
      by Economic Logician in Economic Logic on 2014-01-13 21:49:00

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    Cited by:

    1. Dmitry Lubensky, 2017. "A model of recommended retail prices," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 358-386, May.
    2. Janssen, Maarten & Reshidi, Edona, 2022. "Regulating recommended retail prices," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    3. Danial Asmat & Chenyu Yang, 2019. "An Empirical Analysis of Minimum Advertised Price Restrictions," Working Papers 19-07, NET Institute.
    4. In Kyung Kim & Vladyslav Nora, 2017. "Buyer Power and Information Disclosure," Working Papers 1707, Nazarbayev University, Department of Economics, revised Feb 2018.

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    More about this item

    Keywords

    Recommended retail price; Vertical restraints; Resale price maintenance; Price caps;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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