The Manufacturer's Suggested Retail Price
Based on arguments of the ‘reference-dependent’ theory of consumer choice we assume that a retailer’s discount of a manufacturer’s suggested retail price changes consumers’ demand. We can show that the producer benefits from suggesting a retail price. If consumers are additionally sufficiently ‘loss averse’, e.g. consumers’ disappointment from higher than suggested retail prices is sufficiently high, the producer can force the retailer to take the suggested price in equilibrium and thus capture some of the retailer’s profits. A producer always benefits from investing into an advertising campaign with suggested retail prices.
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References listed on IDEAS
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- Monika Schnitzer, 1994.
"Dynamic Duopoly with Best-Price Clauses,"
RAND Journal of Economics,
The RAND Corporation, vol. 25(1), pages 186-196, Spring.
- Kahneman, Daniel & Tversky, Amos, 1979.
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- Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
- Charles A. Holt & David T. Scheffman, 1987. "Facilitating Practices: The Effects of Advance Notice and Best-Price Policies," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 187-197, Summer.
- B. Douglas Bernheim & Michael D. Whinston, 1985. "Common Marketing Agency as a Device for Facilitating Collusion," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 269-281, Summer.
- Ram C. Rao & Niladri Syam, 2001. "Equilibrium Price Communication and Unadvertised Specials by Competing Supermarkets," Marketing Science, INFORMS, vol. 20(1), pages 61-81, June.
- Horowitz, Joel L, 1992. "The Role of the List Price in Housing Markets: Theory and an Econometric Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 115-29, April-Jun.
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