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Suggested retail prices with downstream competition

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Author Info

  • Simona Fabrizi

    () (School of Economics and Finance, Massey University, New Zealand)

  • Steffen Lippert

    () (Department of Economics, University of Otago, New Zealand)

  • Clemens Puppe

    () (Department of Economics, Karlsruhe Institute of Technology, Germany)

  • Stephanie Rosenkranz

    () (Utrecht School of Economics, The Netherlands)

Abstract

We analyze vertical relationships between a manufacturer and competing retailers when consumers have reference-dependent preferences. Consumers adopt the manufacturer's suggested retail price as their reference price and perceive losses when purchasing above the suggested price and gains when purchasing below it. In equilibrium, retailers undercut price suggestions and the manufacturer suggests a retail price if consumers are sufficiently bargain-loving and perceive retailers as sufficiently undifferentiated. The manufacturer engages in resale price maintenance otherwise. Consumers can be worse off with suggested retail prices than with resale price maintenance, prompting a rethinking of the current legal treatment of suggested retail prices.

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File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_1203.pdf
File Function: Revised version, 2012
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Bibliographic Info

Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1203.

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Length: 23 pages
Date of creation: Apr 2010
Date of revision: Aug 2012
Handle: RePEc:otg:wpaper:1203

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Related research

Keywords: suggested or recommended retail prices; resale price maintenance; reference-dependent preferences; vertical restraints; competition law and policy;

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