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Salience in Retailing: Vertical Restraints on Internet Sales

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  • Helfrich, Magdalena
  • Herweg, Fabian

Abstract

We provide an explanation for a brand manufacturer's rationale to prohibit retailers to distribute its products over the internet, based on the assumption that a consumer's purchasing decision is distorted by salient thinking. We find that banning online distribution of the branded good aligns retailers’ incentives with the manufacturer's interest to make quality the salient product attribute and allows it to charge a higher wholesale price than under free distribution.

Suggested Citation

  • Helfrich, Magdalena & Herweg, Fabian, 2017. "Salience in Retailing: Vertical Restraints on Internet Sales," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168276, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc17:168276
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    References listed on IDEAS

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    1. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261.
    2. Alberto Cavallo, 2017. "Are Online and Offline Prices Similar? Evidence from Large Multi-channel Retailers," American Economic Review, American Economic Association, vol. 107(1), pages 283-303, January.
    3. repec:eee:indorg:v:52:y:2017:i:c:p:30-62 is not listed on IDEAS
    4. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    5. Chris Forman & Anindya Ghose & Avi Goldfarb, 2009. "Competition Between Local and Electronic Markets: How the Benefit of Buying Online Depends on Where You Live," Management Science, INFORMS, vol. 55(1), pages 47-57, January.
    6. Matthias Hunold & Johannes Muthers, 2017. "Resale price maintenance and manufacturer competition for retail services," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 3-23, March.
    7. John Asker & Heski Bar-Isaac, 2014. "Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals," American Economic Review, American Economic Association, vol. 104(2), pages 672-686, February.
    8. repec:oup:jeurec:v:15:y:2017:i:3:p:626-653. is not listed on IDEAS
    9. Nestor Duch-Brown & Lukasz Grzybowski & Frank Verboven, 2015. "The Impact of Online Sales on Consumers and Firms: Evidence from Household Appliances," JRC Working Papers on Digital Economy 2015-15, Joint Research Centre (Seville site).
    10. Markus Dertwinkel-Kalt & Katrin Köhler & Mirjam R. J. Lange & Tobias Wenzel, 2017. "Demand Shifts Due to Salience Effects: Experimental Evidence," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 626-653.
    11. Daniel Kahneman & Richard H. Thaler, 2006. "Anomalies: Utility Maximization and Experienced Utility," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 221-234, Winter.
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    Cited by:

    1. Dertwinkel-Kalt, Markus & Köster, Mats, 2018. "Salience and Online Sales: The Role of Brand Image Concerns," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181498, Verein für Socialpolitik / German Economic Association.
    2. Markus Dertwinkel-Kalt & Mats Köster, 2017. "Salience and Online Sales: The Role of Brand Image Concerns," CESifo Working Paper Series 6787, CESifo Group Munich.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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