Do MSRPs Decrease Prices?
AbstractThe nature of manufacturer’s suggested retail prices (MSRP) and whether their effect is pro or anticompetitive is not well understood. Opposing theories suggest that manufacturers may attempt to reduce retail prices to deter double marginalization or increase retail prices to foster upstream or downstream collusion. We exploit a policy experiment in South Korea in which MSRPs were banned and then reinstated one year later to estimate their impact on prices. The ban increased prices by 2.3 percent and the reinstatement decreased prices by 2.6 percent, demonstrating the pro-competitive effect of MSRPs. Based on a lack of evidence that recommendations act as binding price ceilings, we offer an alternative explanation in which MSRPs provide information to searching consumers. We demonstrate that the removal of recommendations can reduce search and increase prices.
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Bibliographic InfoPaper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2013-13.
Date of creation: Dec 2013
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More information through EDIRC
recommended retail price; suggested retail price; list price; non-binding price; search with uncertainty; vertical restraints; resale price maintenance;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-15 (All new papers)
- NEP-COM-2013-12-15 (Industrial Competition)
- NEP-HME-2013-12-15 (Heterodox Microeconomics)
- NEP-IND-2013-12-15 (Industrial Organization)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Do MRSPs (manufacturer suggested retail prices) have an impact on prices?
by Economic Logician in Economic Logic on 2014-01-13 15:49:00
- Dmitry Lubensky, 2013. "A Model of Recommended Retail Prices," Working Papers 2013-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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