Making Sense of Nonbinding Retail-Price Recommendations

Stefan Buehler and Dennis Gärtner ()

American Economic Review, 2013, vol. 103, issue 1, 335-59

Abstract: We model retail-price recommendations (RPRs) as a communication device in vertical supply relations with private manufacturer information on production costs and consumer demand. With static trade, RPRs are irrelevant, and the equilibrium outcome is inefficient. With repeated trade, RPRs can become part of a relational contract, communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus. We show that this contract is self-enforcing if the retailer's profit is independent of production costs and punishment strategies are chosen appropriately. The predictions of our analysis are consistent with the available empirical evidence. (JEL D21, D24, L11, L14, L22, L60, L81)

JEL-codes: D21 D24 L11 L14 L22 L60 L81 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.1.335
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Citations: View citations in EconPapers (27)

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Related works:
Working Paper: Making Sense of Non-Binding Retail-Price Recommendations (2010)
Working Paper: Making Sense of Non-Binding Retail-Price Recommendations (2009)
Working Paper: Making Sense of Non-Binding Retail-Price Recommendations (2009)
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