Do MSRPs Decrease Prices?

Babur De los Santos (), In Kyung Kim and Dmitry Lubensky ()
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In Kyung Kim: Department of Economics, Indiana University

No 2013-13, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: The nature of manufacturer’s suggested retail prices (MSRP) and whether their effect is pro or anticompetitive is not well understood. Opposing theories suggest that manufacturers may attempt to reduce retail prices to deter double marginalization or increase retail prices to foster upstream or downstream collusion. We exploit a policy experiment in South Korea in which MSRPs were banned and then reinstated one year later to estimate their impact on prices. The ban increased prices by 2.3 percent and the reinstatement decreased prices by 2.6 percent, demonstrating the pro-competitive effect of MSRPs. Based on a lack of evidence that recommendations act as binding price ceilings, we offer an alternative explanation in which MSRPs provide information to searching consumers. We demonstrate that the removal of recommendations can reduce search and increase prices.

Keywords: recommended retail price; suggested retail price; list price; non-binding price; search with uncertainty; vertical restraints; resale price maintenance (search for similar items in EconPapers)
JEL-codes: L11 L40 L81 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-com, nep-hme and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Do MSRPs decrease prices? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:iuk:wpaper:2013-13

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