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Minimum Advertised Price

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  • Raja Kali

Abstract

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.

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
    DOI: 10.1111/j.1430-9134.1998.00647.x
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    References listed on IDEAS

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    1. Ralph A. Winter, 1993. "Vertical Control and Price Versus Nonprice Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 61-76.
    2. Howard P. Marvel & Stephen McCafferty, 1984. "Resale Price Maintenance and Quality Certification," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 346-359, Autumn.
    3. Klein, Benjamin & Murphy, Kevin M, 1988. "Vertical Restraints as Contract Enforcement Mechanisms," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 265-297, October.
    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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    Cited by:

    1. Anshuman Chutani & Suresh P. Sethi, 2012. "Optimal Advertising and Pricing in a Dynamic Durable Goods Supply Chain," Journal of Optimization Theory and Applications, Springer, vol. 154(2), pages 615-643, August.
    2. 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.
    3. Sacco, Armando & De Giovanni, Pietro, 2019. "Channel coordination with a manufacturer controlling the price and the effect of competition," Journal of Business Research, Elsevier, vol. 96(C), pages 97-114.
    4. John Asker & Heski Bar-Isaac, 2020. "Vertical Information Restraints: Pro- and Anticompetitive Impacts of Minimum-Advertised-Price Restrictions," Journal of Law and Economics, University of Chicago Press, vol. 63(1), pages 111-148.
    5. Raskovich, Alexander, 2007. "Retail buyer power through steering," Economics Letters, Elsevier, vol. 96(2), pages 221-225, August.
    6. 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.
    7. 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.
    8. 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.
    9. Ayelet Israeli, 2018. "Online MAP Enforcement: Evidence from a Quasi-Experiment," Marketing Science, INFORMS, vol. 37(5), pages 710-732, September.

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