Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Wednesday, May 26, 2010

Making Sense of Non-Binding Retail-Price Recommendations

Posted by D. Daniel Sokol


Stefan Buehler, University of St. Gallen - Department of Economics and Dennis Gärtner, University of Zurich - Socioeconomic Institute help us in Making Sense of Non-Binding Retail-Price Recommendations.

ABSTRACT: We model non-binding retail-price recommendations (RPRs) as a communication device facilitating coordination in vertical supply relations. Assuming both repeated vertical trade and asymmetric information about production costs, we show that RPRs may be part of a relational contract, communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus. We show that this contract is self-enforcing if the retailer’s profit is independent of production costs and punishment strategies are chosen appropriately. We also extend our analysis to settings where consumer demand is variable or depends directly on the manufacturer’s RPRs.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/05/making-sense-of-nonbinding-retailprice-recommendations.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef013480858d76970c

Listed below are links to weblogs that reference Making Sense of Non-Binding Retail-Price Recommendations:

Comments

Post a comment