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Minimum Advertised Price


  • Raja Kali


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.

Suggested Citation

  • Raja Kali, 1998. "Minimum Advertised Price," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 647-668, December.
  • Handle: RePEc:bla:jemstr:v:7:y:1998:i:4:p:647-668

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    1. repec:spr:joptap:v:154:y:2012:i:2:d:10.1007_s10957-012-0034-5 is not listed on IDEAS
    2. Asker, John & Bar-Isaac, Heski, 2016. "Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions," CEPR Discussion Papers 11579, C.E.P.R. Discussion Papers.
    3. Raskovich, Alexander, 2007. "Retail buyer power through steering," Economics Letters, Elsevier, vol. 96(2), pages 221-225, August.
    4. Anshuman Chutani & Suresh Sethi, 2012. "Cooperative Advertising in a Dynamic Retail Market Oligopoly," Dynamic Games and Applications, Springer, vol. 2(4), pages 347-375, December.
    5. Aust, Gerhard & Buscher, Udo, 2014. "Cooperative advertising models in supply chain management: A review," European Journal of Operational Research, Elsevier, vol. 234(1), pages 1-14.
    6. Ayelet Israeli & Eric T. Anderson & Anne T. Coughlan, 2016. "Minimum Advertised Pricing: Patterns of Violation in Competitive Retail Markets," Marketing Science, INFORMS, vol. 35(4), pages 539-564, July.
    7. Preyas S. Desai & Anand Krishnamoorthy & Preethika Sainam, 2010. "“Call for Prices”: Strategic Implications of Raising Consumers' Costs," Marketing Science, INFORMS, vol. 29(1), pages 158-174, 01-02.

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