Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions / John Asker, Heski Bar-Isaac.

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Asker, John

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w22771.Publication details: Cambridge, Mass. National Bureau of Economic Research 2016.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We consider vertical contracts where the retail market may involve search frictions. Minimum advertised price restrictions (MAP) act as a restraint on customers' information and so can increase search frictions in the retail sector. Such restraints, thereby, soften retail competition--an impact also generated by resale price maintenance (RPM). However, by accommodating (consumer or retailer) heterogeneity, MAP can allow for higher manufacturer profits than RPM. We show that they can do so through facilitating price discrimination among consumers; encouraging service provision; and facilitating manufacturer collusion. Thus, welfare effects may be positive or negative compared to RPM or to the absence of such restrictions.

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Previous	nber w22769 Evaluating Economy-Wide Benefit Cost Analyses /	nber w2277 Financial Innovations in International Financial Markets /	nber w22770 Is Uncle Sam Inducing the Elderly to Retire? /	nber w22771 Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions /	nber w22772 Collective Choice in Dynamic Public Good Provision /	nber w22773 Multidimensional Private Information, Market Structure and Insurance Markets /	nber w22774 Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry /	Next

October 2016.

We consider vertical contracts where the retail market may involve search frictions. Minimum advertised price restrictions (MAP) act as a restraint on customers' information and so can increase search frictions in the retail sector. Such restraints, thereby, soften retail competition--an impact also generated by resale price maintenance (RPM). However, by accommodating (consumer or retailer) heterogeneity, MAP can allow for higher manufacturer profits than RPM. We show that they can do so through facilitating price discrimination among consumers; encouraging service provision; and facilitating manufacturer collusion. Thus, welfare effects may be positive or negative compared to RPM or to the absence of such restrictions.