Friday, December 16, 2016
Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions
John Asker, New York University - Leonard N. School of Business - Department of Economics and Heski Bar-Isaac, University of Toronto - Rotman School of Management have a fascinating paper on Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions.
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.