Online MAP Enforcement: Evidence From a Quasi-Experiment

Marketing Science, Forthcoming

63 Pages Posted: 24 Mar 2018

See all articles by Ayelet Israeli

Ayelet Israeli

Harvard Business School - Marketing Unit

Date Written: January 22, 2018

Abstract

This paper investigates a manufacturer’s ability to influence compliance rates among its authorized online retailers by exploiting changes in the Minimum Advertised Price (MAP) policy and in dealer agreements. MAP is a pricing policy widely used by manufacturers to influence prices set by their downstream partners. A MAP policy imposes a lower bound on advertised prices, subjecting violating retailers to punishments such as termination of distribution agreements. Despite this threat, violations are common. I uncover two key elements to improve compliance: customization to the online environment and credible monitoring and punishments.

I analyze the pricing, enforcement, and channel management policies of a manufacturer over several years. During this period, new channel policies take effect, providing a quasi-experiment. The new policies lead to substantially fewer violations. With improved compliance, channel prices increase by 2% without loss in volume. The reduction in violations is particularly stark among authorized retailers with lower sales volume, those that previously operated unapproved websites, and those that have received violation notifications for the specific product before. Moreover, low service providers improve their service. At the same time, there is an increase in opportunistic behavior among top retailers, retailers that received notifications for other products, and for less popular products via deep discounting.

Keywords: Minimum Advertised Price, Pricing, Retailing, Quasi-Experiment, Channel Management, Online Distribution, E-Commerce, Enforcement

Suggested Citation

Israeli, Ayelet, Online MAP Enforcement: Evidence From a Quasi-Experiment (January 22, 2018). Marketing Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3148625

Ayelet Israeli (Contact Author)

Harvard Business School - Marketing Unit ( email )

Soldiers Field
Boston, MA 02163
United States

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