Regulating recommended retail prices

Author(s)
Maarten Janssen, Edona Reshidi
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.

Organisation(s)
Department of Economics
External organisation(s)
Bank of Canada
Journal
International Journal of Industrial Organization
Volume
85
ISSN
0167-7187
DOI
https://doi.org/10.1016/j.ijindorg.2022.102872
Publication date
12-2022
Peer reviewed
Yes
Austrian Fields of Science 2012
502021 Microeconomics
Keywords
ASJC Scopus subject areas
Aerospace Engineering, Economics and Econometrics, Economics, Econometrics and Finance (miscellaneous), Industrial relations, Industrial and Manufacturing Engineering, Strategy and Management
Portal url
https://ucrisportal.univie.ac.at/en/publications/regulating-recommended-retail-prices(57dd2d42-e13d-4326-977e-08de110efefb).html