Demand Uncertainty and Price Maintainance: Markdowns as Destructive Competition

Howard P. Marvel (), Raymond Deneckere and James Peck

Working Papers from Ohio State University, Department of Economics

Abstract: This paper offers a new theory of destructive competition. We compare minimum resale price maintenance (RPM) to retail market clearing in a model with a monopolistic manufacturer selling to competitive retailers. In both the RPM and Flexible-Pricing Games, retailers must order inventories before the realization of demand uncertainty. We find that manufacturer profits and equilibrium inventories are higher under RPM than under market clearing. Surprisingly, consumer surplus can also be higher, in which case unfettered retail competition can legitimately be called destructive.

Date: 1995-08
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Journal Article: Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:osu:osuewp:018

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