Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition

Raymond Deneckere, Howard P Marvel and James Peck

American Economic Review, 1997, vol. 87, issue 4, 619-41

Abstract: This paper offers a new theory of destructive competition. The authors compare minimum resale price maintenance to retail market-clearing in a model with a monopolistic manufacturer selling to competitive retailers. In both the resale price maintenance and flexible-price games, retailers must order inventories before the realization of demand uncertainty. The authors find that manufacturer profits and equilibrium inventories are higher under resale price maintenance than under market-clearing. Surprisingly, consumer surplus can also be higher, in which case unfettered retail competition can legitimately be called 'destructive.' Copyright 1997 by American Economic Association.

Date: 1997
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Related works:
Working Paper: Demand Uncertainty and Price Maintenace: Markdowns as Destructive Competition (1995)
Working Paper: Demand Uncertainty and Price Maintainance: Markdowns as Destructive Competition (1995)
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