An Empirical Analysis of Minimum Advertised Price Restrictions

Danial Asmat and Chenyu Yang ()
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Chenyu Yang: University of Maryland, Tydings Hall, College Park, MD 20740

No 19-07, Working Papers from NET Institute

Abstract: Recent theory has examined the competitive effects of minimum advertised price (MAP) restrictions: manufacturer policies that can limit the ability of consumers to search for product prices. In this paper, we empirically study the effect of a major electronics manufacturer's MAP policy on the e-retail prices for its hardware products. Our approach leverages three types of data: contractual MAP values by product from 2011-2013; daily prices across its largest e-retailers; and the frequency of visits to each e-retailer from a representative household panel. We use a model of search with advertised prices to guide two types of findings. First, descriptive patterns of retailer prices are consistent with the market exhibiting consumer search costs, whereby it is costlier to search when price is below MAP than above MAP. Second, reduced form models imply that MAP diminishes the effect of increased retailer competition on decreased price dispersion, whereby prices are up to 6% more dispersed with MAP than without MAP. This is consistent with a model of inter-retailer price discrimination.

Keywords: search cost; vertical restraint; advertised price; resale price maintenance; RPM; electronic retail (search for similar items in EconPapers)
JEL-codes: D83 L41 L81 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2019-07
New Economics Papers: this item is included in nep-com
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