Suggested retail prices with downstream competition

Simona Fabrizi (), Steffen Lippert, Clemens Puppe () and Stephanie Rosenkranz

No 1203, Working Papers from University of Otago, Department of Economics

Abstract: We analyze vertical relationships between a manufacturer and competing retailers when consumers have reference-dependent preferences. Consumers adopt the manufacturer's suggested retail price as their reference price and perceive losses when purchasing above the suggested price and gains when purchasing below it. In equilibrium, retailers undercut price suggestions and the manufacturer suggests a retail price if consumers are sufficiently bargain-loving and perceive retailers as sufficiently undifferentiated. The manufacturer engages in resale price maintenance otherwise. Consumers can be worse off with suggested retail prices than with resale price maintenance, prompting a rethinking of the current legal treatment of suggested retail prices.

Keywords: suggested or recommended retail prices; resale price maintenance; reference-dependent preferences; vertical restraints; competition law and policy (search for similar items in EconPapers)
JEL-codes: D03 D43 K21 L42 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2010-04, Revised 2012-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Suggested retail prices with downstream competition (2012)
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