Demand Uncertainty and Price Maintainance: Markdowns as Destructive Competition
This paper offers a new theory of destructive competition. We compare minimum resale price maintenance (RPM) to retail market clearing in a model with a monopolistic manufacturer selling to competitive retailers. In both the RPM and Flexible-Pricing Games, retailers must order inventories before the realization of demand uncertainty. We find that manufacturer profits and equilibrium inventories are higher under RPM than under market clearing. Surprisingly, consumer surplus can also be higher, in which case unfettered retail competition can legitimately be called destructive.
|Date of creation:||Aug 1995|
|Contact details of provider:|| Postal: 410 Arps Hall 1945 North High Street Columbus, Ohio 43210-1172|
When requesting a correction, please mention this item's handle: RePEc:osu:osuewp:018. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John Slaughter)
If references are entirely missing, you can add them using this form.