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The Economic Theory of Retail Pricing: A Survey

Oana Secrieru ()

Staff Working Papers from Bank of Canada

Abstract: The types of contracts that arise in a typical vertical manufacturer–retailer relationship are more sophisticated than usually assumed in standard macroeconomic models. In addition to setting per-unit prices, manufacturers and retailers revert to non-linear pricing and non-price instruments. These instruments or contracts are referred to as vertical restraints and can take the form of franchise fees, resale-price maintenance, exclusive dealing, exclusive territories, and slotting allowances. The use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers. The author surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices, market structure, efficiency, and welfare. Some potentially important macroeconomic implications of vertical restraints are suggested.

Keywords: Market; structure; and; pricing (search for similar items in EconPapers)
JEL-codes: D40 L22 L42 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2004
New Economics Papers: this item is included in nep-ind and nep-mic
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Handle: RePEc:bca:bocawp:04-8