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Minimum Advertised Price

Raja Kali

Journal of Economics & Management Strategy, 1998, vol. 7, issue 4, 647-668

Abstract: This paper examines minimum advertised price (MAP), a vertical restraint that is observed in manufacturer‐retailer interactions. Under MAP, the manufacturer announces that it will reimburse retailers for a fraction of their advertising expenditures if retailers do not advertise the product at below a specified price. MAP can be considered a combination of resale price maintenance (RPM) and a cooperative advertising subsidy. Current antitrust law treats RPM as illegal per se, whereas MAP is judged according to a rule of reason. A framework is presented within with neither a minimum retail price nor a cooperative advertising subsidy is individually sufficient to enable maximization of profits in the complete manufacturer‐retailer structure, but the two instruments together are. MAP is therefore a sufficient instrument for the maximization of joint profits. We argue that MAP can also be designed as a second‐best instrument that replicates RPM.

Date: 1998
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https://doi.org/10.1111/j.1430-9134.1998.00647.x

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