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Minimum Advertised Price

Listed author(s):
  • Raja Kali
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    This paper examines minimum advertised price (MAP), a vertical restraint that is observed in manufacturer-retailer interactions. Under MAP, the manufacturer announces that it will reimburse retailers for a fraction of their advertising expenditures if retailers do not advertise the product at below a specified price. MAP can be considered a combination of resale price maintenance (RPM) and a cooperative advertising subsidy. Current antitrust law treats RPM as illegal per se, whereas MAP is judged according to a rule of reason. A framework is presented within with neither a minimum retail price nor a cooperative advertising subsidy is individually sufficient to enable maximization of profits in the complete manufacturer-retailer structure, but the two instruments together are. MAP is therefore a sufficient instrument for the maximization of joint profits. We argue that MAP can also be designed as a second-best instrument that replicates RPM. Copyright (c) 1998 Massachusetts Institute of Technology.

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    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 7 (1998)
    Issue (Month): 4 (December)
    Pages: 647-668

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    Handle: RePEc:bla:jemstr:v:7:y:1998:i:4:p:647-668
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