Suggested retail prices with downstream competition
AbstractWe 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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Bibliographic InfoPaper provided by University of Otago, Department of Economics in its series Working Papers with number 1203.
Length: 23 pages
Date of creation: Apr 2010
Date of revision: Aug 2012
suggested or recommended retail prices; resale price maintenance; reference-dependent preferences; vertical restraints; competition law and policy;
Other versions of this item:
- Simona Fabrizi & Steffen Lippert & Clemens Puppe & Stephanie Rosenkranz, 2012. "Suggested retail prices with downstream competition," Working Papers 12-13, Utrecht School of Economics.
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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