Manufacturer suggested retail prices, loss aversion and competition

Simona Fabrizi (), Steffen Lippert, Clemens Puppe () and Stephanie Rosenkranz

Journal of Economic Psychology, 2016, vol. 53, issue C, 141-153

Abstract: We study a model of vertical relations with imperfect retail competition in which a fraction of the consumers display reference-dependent demand with respect to the manufacturer’s suggested retail price. We demonstrate that in equilibrium the suggestion will either be undercut or complied with by the retailers, but never surpassed: undercutting occurs if competition is fierce, the impact from consumers affected by reference-dependent preferences is significant, and high price suggestions are credible; compliance occurs otherwise. We provide comparisons, and discuss implications, for consumer surplus for the scenarios with suggested retail prices, without vertical restraints and with resale price maintenance.

Keywords: 3900; 3920; Reference-dependent preferences; Loss aversion; Suggested retail prices; Resale price maintenance; Vertical restraints (search for similar items in EconPapers)
JEL-codes: D03 D11 L13 L42 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:53:y:2016:i:c:p:141-153

DOI: 10.1016/j.joep.2016.02.001

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