Making Sense of Non-Binding Retail-Price Recommendations

Dennis Gärtner () and Stefan Buehler

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: We model non-binding retail-price recommendations (RPRs) as a communication device facilitating coordination in vertical supply relations. Assuming both repeated vertical trade and asymmetric information about production costs, we show that RPRs may be part of a relational contract, communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus. We show that this contract is self-enforcing if the retailer’s profit is independent of production costs and punishment strategies are chosen appropriately. We also extend our analysis to settings where consumer demand is variable or depends directly on the manufacturer’s RPRs. Keywords: vertical relationships, relational contracts, asymmetric information, price recommendations. JEL Classification: D23; D43; L14; L15.

Keywords: Business; Social and Behavioral Sciences (search for similar items in EconPapers)
Date: 2009-10-15
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Making Sense of Nonbinding Retail-Price Recommendations (2013)
Working Paper: Making Sense of Non-Binding Retail-Price Recommendations (2010)
Working Paper: Making Sense of Non-Binding Retail-Price Recommendations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:econwp:qt51z312zt

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