Advanced Search
MyIDEAS: Login to save this paper or follow this series

Making Sense of Non-Binding Retail-Price Recommendations

Contents:

Author Info

  • Stefan Buehler

    ()
    (University of St.Gallen)

  • Dennis L. Gaertner

    ()
    (Socioeconomic Institute, University of Zurich)

Abstract

This paper provides a theoretical rationale for non-binding retail price recommendations (RPRs) in vertical supply relations. Analyzing a bilateral manufacturer-retailer relationship with repeated trade, we show that linear relational contracts can implement the surplus-maximizing outcome. If the manufacturer has private information about production costs or consumer demand, RPRs may serve as a communication device from manufacturer to retailer. We characterize the properties of efficient bilateral relational contracts with RPRs and discuss extensions to settings where consumer demand is affected by RPRs, and where there are multiple retailers or competing supply chains.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.soi.uzh.ch/research/wp/2009/wp0902.pdf
File Function: first version, 2009
Download Restriction: no

Bibliographic Info

Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0902.

as in new window
Length: 30 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:soz:wpaper:0902

Contact details of provider:
Postal: Blümlisalpstrasse 10, CH-8006 Zürich
Phone: +41-1-634 22 05
Fax: +41-1-634 49 07
Email:
Web page: http://www.soi.uzh.ch/
More information through EDIRC

Related research

Keywords: vertical relationships; relational contracts; asymmetric information; price recommendations;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers, University of California at Berkeley 8759, University of California at Berkeley.
  2. Villas-Boas, Sofia B., 2006. "Vertical relationships between manufacturers and retailers: inference with limited data," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series, Department of Agricultural & Resource Economics, UC Berkeley qt0z26d2v9, Department of Agricultural & Resource Economics, UC Berkeley.
  3. Bonnet, Céline & Dubois, Pierre, 2009. "Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Nonlinear Pricing and Resale Price Maintenance," TSE Working Papers, Toulouse School of Economics (TSE) 09-040, Toulouse School of Economics (TSE).
  4. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, 06.
  5. Volker Nocke & Lucy White, 2007. "Do Vertical Mergers Facilitate Upstream Collusion?," American Economic Review, American Economic Association, American Economic Association, vol. 97(4), pages 1321-1339, September.
  6. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, American Economic Association, vol. 93(3), pages 835-857, June.
  7. Draganska, Michaela & Klapper, Daniel & Villas-Boas, Sofia B., 2008. "A larger slice or a larger pie? : an empirical investigation of bargaining power in the distribution channel," CUDARE Working Paper Series, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy 1046, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  8. Gal-Or, Esther, 1991. "Optimal franchising in oligopolistic markets with uncertain demand," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 9(3), pages 343-364, September.
  9. Jullien, Bruno & Rey, Patrick, 2000. "Resale Price Maintenance and Collusion," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 102, Institut d'Économie Industrielle (IDEI), Toulouse.
  10. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195300796, October.
  11. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 39-84, February.
  12. Richard Thaler, 1985. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, INFORMS, vol. 4(3), pages 199-214.
  13. Sorin Sylvain, 1995. "A Note on Repeated Extensive Games," Games and Economic Behavior, Elsevier, Elsevier, vol. 9(1), pages 116-123, April.
  14. Wen, Quan, 2002. "A Folk Theorem for Repeated Sequential Games," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 69(2), pages 493-512, April.
  15. Rajiv Lal & Chakravarthi Narasimhan, 1996. "The Inverse Relationship Between Manufacturer and Retailer Margins: A Theory," Marketing Science, INFORMS, INFORMS, vol. 15(2), pages 132-151.
  16. Martimort, David & Piccolo, Salvatore, 2007. "Resale price maintenance under asymmetric information," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(2), pages 315-339, April.
  17. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer, Springer, vol. 13(1), pages 57-84, April.
  18. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, Elsevier, vol. 51(3), pages 647-667, April.
  19. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, Elsevier, vol. 49(2), pages 294-313, December.
  20. Mailath, George J. & Nocke, Volker & White, Lucy, 2004. "When the Punishment Must Fit the Crime: Remarks on the Failure of Simple Penal Codes in Extensive-Form Games," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4793, C.E.P.R. Discussion Papers.
  21. 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.
  22. Miklós-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2010. "Vertical relations," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(4), pages 345-349, July.
  23. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 260-288, October.
  24. Martin A. Lariviere & V. Padmanabhan, 1997. "Slotting Allowances and New Product Introductions," Marketing Science, INFORMS, INFORMS, vol. 16(2), pages 112-128.
  25. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, Elsevier, vol. 39(1), pages 191-225, June.
  26. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 614-41, June.
  27. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 22(2), pages 399-404, October.
  28. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 533-54, May.
  29. S. Fabrizi & S. Lippert & C. Puppe & S. Rosenkranz, 2013. "Suggested retail prices with downstream competition," Working Papers, Utrecht School of Economics 12-13, Utrecht School of Economics.
  30. Rubinstein Ariel & Wolinsky Asher, 1995. "Remarks on Infinitely Repeated Extensive-Form Games," Games and Economic Behavior, Elsevier, Elsevier, vol. 9(1), pages 110-115, April.
  31. Benjamin F. Blair & Tracy R. Lewis, 1994. "Optimal Retail Contracts with Asymmetric Information and Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 284-296, Summer.
  32. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 383-96, March.
  33. Clemens Puppe & Stephanie Rosenkranz, 2011. "Why Suggest Non‐Binding Retail Prices?," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 78(310), pages 317-329, 04.
  34. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 58, pages 347.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Dmitry Lubensky, 2013. "A Model of Recommended Retail Prices," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2013-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Lisa Bruttel, 2014. "The Effects of Non-binding Retail-price Recommendations on Consumer and Retailer Behavior," TWI Research Paper Series, Thurgauer Wirtschaftsinstitut, Universität Konstanz 93, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  3. Ilja Neustadt & Peter Zweifel, 2009. "Economic Well-Being, Social Mobility, and Preferences for Income Redistribution: Evidence from a Discrete Choice Experiment," SOI - Working Papers, Socioeconomic Institute - University of Zurich 0909, Socioeconomic Institute - University of Zurich, revised Jan 2010.
  4. Babur De los Santos & In Kyung Kim & Dmitry Lubensky, 2013. "Do MSRPs Decrease Prices?," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2013-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  5. Maurus Rischatsch & Maria Trottmann, 2009. "Physician dispensing and the choice between generic and brand-name drugs – Do margins affect choice?," SOI - Working Papers, Socioeconomic Institute - University of Zurich 0911, Socioeconomic Institute - University of Zurich.
  6. Maurus Rischatsch, 2009. "Simulating WTP Values from Random-Coefficient Models," SOI - Working Papers, Socioeconomic Institute - University of Zurich 0912, Socioeconomic Institute - University of Zurich.
  7. Dmitry Lubensky, 2011. "A Model of Recommended Retail Prices," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2011-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:soz:wpaper:0902. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.