An "Image Theory" of RPM

Roman Inderst and Sebastian Pfeil

MPRA Paper from University Library of Munich, Germany

Abstract: We show how a brand manufacturer’s control over retail prices can lead to efficiencies when consumers rely on prices as a signal of quality. For this we first show how higher prices can be associated with both higher quality perception as well as higher actual quality. We next identify a conflict of interest between retailers and manufactures. Retailers do not internalize the ensuing reputation spill-over that higher prices have on demand at all outlets. And they have less incentives to support brand image through higher prices as this erodes their own position in negotiations while increasing that of the manufacturer. Our efficiency defence for RPM thus applies even when retailers need not be incentivized to undertake non-contractible activities, as in our model the key opportunism problem, with respect to quality provision, lies between the manufacturer and consumers.

Keywords: Resale Price Maintenance; Quality Incentives; Quality Image (search for similar items in EconPapers)
JEL-codes: L15 L42 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-com, nep-cta and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: An "Image Theory" of RPM (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:54139

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