Suggested Retail Prices with Downstream Competition

22 Pages Posted: 16 Aug 2012  

Simona Fabrizi

Massey University

Steffen Lippert

University of Otago - School of Business - Department of Economics

Clemens Puppe

Karlsruhe Institute of Technology; University of Karlsruhe

Stephanie Rosenkranz

Utrecht University - Utrecht University School of Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 16, 2012

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

JEL Classification: D03, D43, K21, L42

Suggested Citation

Fabrizi, Simona and Lippert, Steffen and Puppe, Clemens and Rosenkranz, Stephanie, Suggested Retail Prices with Downstream Competition (August 16, 2012). Available at SSRN: https://ssrn.com/abstract=2130281 or http://dx.doi.org/10.2139/ssrn.2130281

Simona Fabrizi (Contact Author)

Massey University ( email )

Auckland
New Zealand
+64 9 414 0800 Ext 9335 (Phone)
+64 9 441 8177 (Fax)

HOME PAGE: http://www.massey.ac.nz/~sfabrizi

Steffen Lippert

University of Otago - School of Business - Department of Economics ( email )

PO Box 56
Dunedin
New Zealand

Clemens Puppe

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

University of Karlsruhe ( email )

Kaiserstrasse 12
Karlsruhe, 76128
Germany

HOME PAGE: http://www.wior.uni-karlsruhe.de/LS_Puppe/Personal/puppe_home

Stephanie Rosenkranz

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 30 253 9806 (Phone)
+31 30 253 7373 (Fax)

HOME PAGE: http://www.uu.nl/uupublish/defaculteit/persoonlijkepagi/rosenkranz/

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Paper statistics

Downloads
137
Rank
171,147
Abstract Views
777