Branding, Quality, and 'Price Ownership' through RPM

33 Pages Posted: 14 Feb 2014

See all articles by Roman Inderst

Roman Inderst

Goethe University Frankfurt

Sebastian Pfeil

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)

Date Written: August 2013

Abstract

Manufacturers constantly make decisions that crucially affect product quality, e.g., through procuring high-quality inputs or maintaining high hygienic standards in production. We show fi…rst how a high price for its product increases a manufacturer’s incentives, so that there is a positive relationship between quality and price. We then point out a confl‡ict of interest between retailers and the manufacturer in the choice of the …final price. Retailers do not internalize the reputation spill-over that higher prices have on demand at all outlets and they have, in addition, less incentives to support brand image through higher prices as this erodes their own outside option while increasing that of the manufacturer. "Price ownership" by the manufacturer, as supported by RPM, can then lead to higher quality, higher overall efficiency, and possibly also higher consumer surplus even when prices are higher.

Suggested Citation

Inderst, Roman and Pfeil, Sebastian, Branding, Quality, and 'Price Ownership' through RPM (August 2013). Available at SSRN: https://ssrn.com/abstract=2395258 or http://dx.doi.org/10.2139/ssrn.2395258

Roman Inderst (Contact Author)

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60629
Germany
+49 (69) 798-34601 (Phone)
+49 (69) 798-35000 (Fax)

HOME PAGE: http://www.wiwi.uni-frankfurt.de/en/departments/finance/lehrstuhl/prof-dr-roman-inderst/team

Sebastian Pfeil

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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