An Empirical Analysis of Minimum Advertised Price Restrictions

36 Pages Posted: 23 Oct 2019

See all articles by Danial Asmat

Danial Asmat

U.S. Department of Justice, Antitrust Division

Chenyu Yang

University of Maryland - Department of Economics

Date Written: September 30, 2019

Abstract

Recent theory has examined the competitive effects of minimum advertised price (MAP) restrictions: manufacturer policies that can limit the ability of consumers to search for product prices. In this paper, we empirically study the effect of a major electronics manufacturer’s MAP policy on the e-retail prices for its hardware products. Our approach leverages three types of data: contractual MAP values by product from 2011-2013; daily prices across its largest e-retailers; and the frequency of visits to each e-retailer from a representative household panel. We use a model of search with advertised prices to guide two types of findings. First, descriptive patterns of retailer prices are consistent with the market exhibiting consumer search costs, whereby it is costlier to search when price is below MAP than above MAP. Second, reduced form models imply that MAP diminishes the effect of increased retailer competition on decreased price dispersion, whereby prices are up to 6% more dispersed with MAP than without MAP. This is consistent with a model of inter-retailer price discrimination.

Keywords: search cost; vertical restraint; advertised price; resale price maintenance; RPM; electronic retail

JEL Classification: L41, L81, D83

Suggested Citation

Asmat, Danial and Yang, Chenyu, An Empirical Analysis of Minimum Advertised Price Restrictions (September 30, 2019). NET Institute Working Paper No. 19-07, Available at SSRN: https://ssrn.com/abstract=3468421 or http://dx.doi.org/10.2139/ssrn.3468421

Danial Asmat (Contact Author)

U.S. Department of Justice, Antitrust Division ( email )

450 Fifth St. NW
Room 9418
Washington, DC 20530
United States
202-598-8762 (Phone)

HOME PAGE: http://sites.google.com/site/danialasmat/

Chenyu Yang

University of Maryland - Department of Economics ( email )

United States

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