Making Sense of Non-Binding Retail-Price Recommendations

Stefan Buehler and Dennis Gärtner ()

No 3024, CESifo Working Paper Series from CESifo

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 (search for similar items in EconPapers)
JEL-codes: D23 D43 L14 L15 (search for similar items in EconPapers)
Date: 2010
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https://www.cesifo.org/DocDL/cesifo1_wp3024.pdf (application/pdf)

Related works:
Journal Article: Making Sense of Nonbinding Retail-Price Recommendations (2013)
Working Paper: Making Sense of Non-Binding Retail-Price Recommendations (2009)
Working Paper: Making Sense of Non-Binding Retail-Price Recommendations (2009)
Working Paper: Making Sense of Non-Binding Retail-Price Recommendations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3024

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