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The Manufacturer's Suggested Retail Price

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Author Info
Rosenkranz, Stephanie

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Abstract

Based on arguments of the ‘reference-dependent’ theory of consumer choice we assume that a retailer’s discount of a manufacturer’s suggested retail price changes consumers’ demand. We can show that the producer benefits from suggesting a retail price. If consumers are additionally sufficiently ‘loss averse’, e.g. consumers’ disappointment from higher than suggested retail prices is sufficiently high, the producer can force the retailer to take the suggested price in equilibrium and thus capture some of the retailer’s profits. A producer always benefits from investing into an advertising campaign with suggested retail prices.

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Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3954.

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Date of creation: Jun 2003
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Handle: RePEc:cpr:ceprdp:3954

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Related research
Keywords: advertising; loss aversion; manufacturer's suggested retail price; reference dependence; vertical product differentiation;

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Find related papers by JEL classification:
D10 - Microeconomics - - Household Behavior - - - General
D40 - Microeconomics - - Market Structure and Pricing - - - General
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Monika Schnitzer, 1994. "Dynamic Duopoly with Best-Price Clauses," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 186-196, Spring. [Downloadable!] (restricted)
  2. B. Douglas Bernheim & Michael D. Whinston, 1985. "Common Marketing Agency as a Device for Facilitating Collusion," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 269-281, Summer. [Downloadable!] (restricted)
  3. Horowitz, Joel L, 1992. "The Role of the List Price in Housing Markets: Theory and an Econometric Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 115-29, April-Jun. [Downloadable!] (restricted)
  4. Charles A. Holt & David T. Scheffman, 1987. "Facilitating Practices: The Effects of Advance Notice and Best-Price Policies," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 187-197, Summer. [Downloadable!] (restricted)
  5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  6. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer, vol. 13(1), pages 57-84, April. [Downloadable!] (restricted)
  7. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November. [Downloadable!] (restricted)
  8. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Clemens Puppe & Stephanie Rosenkranz, 2006. "Why Suggest Non-Binding Retail Prices?," Working Papers 06-10, Utrecht School of Economics. [Downloadable!]
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