Vertical Restraints and the Forgotten Function of Prices in Brand Management

CPI Antitrust Chronicle, May 2015 (1)

9 Pages Posted: 16 May 2015

See all articles by Roman Inderst

Roman Inderst

Goethe University Frankfurt

Frank P. Maier-Rigaud

ABC economics; IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods

Date Written: May 16, 2015

Abstract

In this article the forgotten role of prices in the analysis of vertical effects is described. While at least some vertical restraints have the potential to entail anticompetitive harm, it is demonstrated that competition law may be overshooting the mark if no account is taken of both, the rather fundamental use of price as a signal of quality and of the important function prices play for manufacturers in their overall “marketing mix” decisions. The article reviews the theoretical and empirical literature demonstrating a well-established link between price and quality. More generally, price is recognized by both practitioners and marketing scholars as a key part of a product’s brand image and, as such, as a key “cue” for consumers. It is thus far more than a simple transfer between consumers and firms, implying that a lower price is not always beneficial for efficiency and consumer welfare. As a result there is a risk of curtailing the possibilities available to brand manufacturers to successfully develop a high quality brand and experiment with different distribution approaches in a changing market place.

Keywords: RPM, dual pricing, cue, marketing mix, quality, quality perception, vertical restraints, vertical block exemption, brand, Veblen good, conspicuous consumption

JEL Classification: K21, L42, L40

Suggested Citation

Inderst, Roman and Maier-Rigaud, Frank P., Vertical Restraints and the Forgotten Function of Prices in Brand Management (May 16, 2015). CPI Antitrust Chronicle, May 2015 (1) , Available at SSRN: https://ssrn.com/abstract=2606926

Roman Inderst

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

Frank P. Maier-Rigaud (Contact Author)

ABC economics ( email )

Berlin, 10115
Germany
10115 (Fax)

HOME PAGE: http://www.ABCecon.com

IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods ( email )

Socle de la Grande Arche
1 Parvis de la Défense
Paris, La Défense Cedex, 92044
France

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