Regulating recommended retail prices

Maarten Janssen, Edona Reshidi

Publications: Contribution to journalArticlePeer Reviewed

Abstract

This paper analyses the effects of regulated recommended retail prices (RRPs). Such recommendations by manufacturers are non-binding in nature and thus retailers do not have to adhere to them. We look at regulations, similar to that by the Federal Trade Commission (FTC), requiring at least some sales to take place at RRPs. Such regulations were introduced with the aim of protecting consumers. In the absence of regulation an equilibrium exists where the manufacturer charges the same wholesale prices across retailers. We show that regulating RRPs enables manufacturers to commit to their unobserved contracts, creating an equilibrium with wholesale price discrimination. We find that such an equilibrium increases manufacturer's profits, but harms retailers and consumers.

Original languageEnglish
Article number102872
JournalInternational Journal of Industrial Organization
Volume85
DOIs
Publication statusPublished - Dec 2022

Austrian Fields of Science 2012

  • 502021 Microeconomics

Keywords

  • CMI
  • Cat2
  • Consumer search
  • Vertical relations

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