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Vertical Information Restraints: Pro- and Anticompetitive Impacts of Minimum-Advertised-Price Restrictions

Author

Listed:
  • John Asker
  • Heski Bar-Isaac

Abstract

We consider vertical contracts in which the retail market may involve search frictions. Minimum-advertised-price (MAP) restrictions act as a restraint on customers’ information and can therefore increase search frictions in the retail sector. Such restraints thereby soften retail competition—an impact also generated by resale price maintenance (RPM). However, by accommodating (consumer or retailer) heterogeneity, MAP restrictions can allow for higher manufacturer profits than RPM. We show that these restrictions can do so through facilitating price discrimination among consumers, encouraging service provision, and facilitating manufacturer collusion. Thus, welfare effects may be positive or negative compared with RPM or with the absence of such restrictions.

Suggested Citation

  • 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.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/705920
    DOI: 10.1086/705920
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    Cited by:

    1. Teis Lunde Lømo & Simen A. Ulsaker, 2021. "Lump‐Sum Payments and Retail Services: A Relational Contracting Perspective," Journal of Industrial Economics, Wiley Blackwell, vol. 69(1), pages 131-168, March.
    2. Steven Callander & Dana Foarta & Takuo Sugaya, 2022. "Market Competition and Political Influence: An Integrated Approach," Econometrica, Econometric Society, vol. 90(6), pages 2723-2753, November.
    3. Andrew Rhodes & Makoto Watanabe & Jidong Zhou, 2021. "Multiproduct Intermediaries," Journal of Political Economy, University of Chicago Press, vol. 129(2), pages 421-464.
    4. Haan, Marco A. & Heijnen, Pim & Obradovits, Martin, 2023. "Competition with list prices," Games and Economic Behavior, Elsevier, vol. 140(C), pages 502-528.
    5. Janssen, Maarten & Reshidi, Edona, 2022. "Regulating recommended retail prices," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    6. Elias Deutscher, 2022. "Brand bidding restraints revisited – What is the appropriate economic and legal framework for the antitrust analysis of vertical online search advertising restraints?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2021-09, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    7. Rhodes, Andrew & Watanabe, Makoto & Zhou, Jidong, 2017. "Multiproduct Intermediaries and Optimal Product Range," MPRA Paper 82136, University Library of Munich, Germany.
    8. Robert Clark & Ignatius Horstmann & Jean-François Houde, 2021. "Hub and Spoke Cartels: Theory and Evidence from the Grocery Industry," NBER Working Papers 29253, National Bureau of Economic Research, Inc.
    9. Garrod, Luke & Olczak, Matthew & Wilson, Chris M., 2020. "Price advertising, double marginalisation and vertical restraints," Economics Letters, Elsevier, vol. 196(C).
    10. Maarten Janssen & Edona Reshidi, 2023. "Discriminatory Trade Promotions in Consumer Search Markets," Marketing Science, INFORMS, vol. 42(2), pages 401-422, March.
    11. Edona Reshidi, 2022. "Vertical Bargaining and Obfuscation," Staff Working Papers 22-13, Bank of Canada.
    12. Aridor, Guy & Gonçalves, Duarte, 2022. "Recommenders’ originals: The welfare effects of the dual role of platforms as producers and recommender systems," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    13. Janssen, Maarten & Reshidi, Edona, 2018. "Retail Discrimination in Search Markets," CEPR Discussion Papers 12945, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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