Competition with List Prices

Marco Haan, Pim Heijnen and Martin Obradovits ()

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

Abstract: This paper studies the competitive role of list prices. We argue that such prices are often more salient than actual retail prices, so consumers' purchase decisions may be influenced by them. Two firms compete by setting prices in a homogeneous product market. They first set a list price that serves as an upper bound on their retail price. Then, after having observed each other's list price, they set retail prices. Building on the canonical Varian (1980) model, we assume that some consumers observe no prices, some observe all prices, and some only observe list prices. We show that if the latter partially informed consumers use a simple rule of thumb, the use of list prices leads to lower retail prices on average. This effect is weakened if partially informed consumers are rational.

Keywords: list prices; recommended retail prices; price competition; price dispersion; advertising (search for similar items in EconPapers)
JEL-codes: C72 L13 (search for similar items in EconPapers)
Pages: 54
Date: 2021-08
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www2.uibk.ac.at/downloads/c9821000/wpaper/2021-08.pdf (application/pdf)

Related works:
Journal Article: Competition with list prices (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inn:wpaper:2021-08

Access Statistics for this paper

More papers in Working Papers from Faculty of Economics and Statistics, Universität Innsbruck Contact information at EDIRC.
Bibliographic data for series maintained by Judith Courian ( this e-mail address is bad, please contact ).