Regulating recommended retail prices

Maarten Janssen and Edona Reshidi

International Journal of Industrial Organization, 2022, vol. 85, issue C

Abstract: This paper analyses the effects of regulated recommended retail prices (RRPs). Such recommendations by manufacturers are non-binding in nature and thus retailers do not have to adhere to them. We look at regulations, similar to that by the Federal Trade Commission (FTC), requiring at least some sales to take place at RRPs. Such regulations were introduced with the aim of protecting consumers. In the absence of regulation an equilibrium exists where the manufacturer charges the same wholesale prices across retailers. We show that regulating RRPs enables manufacturers to commit to their unobserved contracts, creating an equilibrium with wholesale price discrimination. We find that such an equilibrium increases manufacturer’s profits, but harms retailers and consumers.

Keywords: Vertical relations; Consumer search (search for similar items in EconPapers)
JEL-codes: D40 D83 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:85:y:2022:i:c:s0167718722000480

DOI: 10.1016/j.ijindorg.2022.102872

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