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Making Sense of Non-Binding Retail-Price Recommendations

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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.

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File URL: http://www.soi.uzh.ch/research/wp/2009/wp0902.pdf
File Function: first version, 2009
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Bibliographic Info

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

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Length: 30 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:soz:wpaper:0902

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

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References

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Citations

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Cited by:
  1. Ilja Neustadt & Peter Zweifel, 2009. "Economic Well-Being, Social Mobility, and Preferences for Income Redistribution: Evidence from a Discrete Choice Experiment," Working Papers 0909, University of Zurich, Socioeconomic Institute, revised Jan 2010.
  2. Dmitry Lubensky, 2011. "A Model of Recommended Retail Prices," Working Papers 2011-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Maurus Rischatsch, 2009. "Simulating WTP Values from Random-Coefficient Models," Working Papers 0912, University of Zurich, Socioeconomic Institute.
  4. Maurus Rischatsch & Maria Trottmann, 2009. "Physician dispensing and the choice between generic and brand-name drugs – Do margins affect choice?," Working Papers 0911, University of Zurich, Socioeconomic Institute.

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