Working Paper: NBER ID: w22771
Authors: John Asker; Heski Bar-Isaac
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.
Keywords: No keywords provided
JEL Codes: K21; L13; L15; L22; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MAP restrictions (Y91) | soften retail competition (L42) |
| MAP restrictions (Y91) | increase search frictions (D83) |
| MAP policies (E60) | price discrimination (D40) |
| price discrimination (D40) | enhance manufacturer profits (L21) |
| MAP policies (E60) | encourage service provision (L84) |
| MAP policies (E60) | increase retailer profits (L81) |
| MAP policies (E60) | facilitate collusion among manufacturers (L12) |
| facilitate collusion among manufacturers (L12) | stabilize cartel profits (L12) |