Competition with list prices

Marco A. Haan, Pim Heijnen and Martin Obradovits ()

Games and Economic Behavior, 2023, vol. 140, issue C, 502-528

Abstract: Retail prices in stores are often lower than widely advertised list prices. We study the competitive role of such list prices in a homogeneous product duopoly where firms first set list prices before setting possibly reduced retail prices. Building on Varian (1980), we assume that some consumers observe no prices, some observe all prices, and some only observe the more salient list prices. We show that when the latter group chooses myopically, firms' ability to use list prices lowers average transaction prices. This effect is weakened when these consumers are rational. The possibility to use list prices facilitates collusion.

Keywords: List prices; Recommended retail prices; Price competition; Price dispersion; Advertising (search for similar items in EconPapers)
JEL-codes: C72 L13 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Competition with List Prices (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:140:y:2023:i:c:p:502-528

DOI: 10.1016/j.geb.2023.04.012

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