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Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions

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  • Bar-Isaac, Heski
  • Asker, John

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.

Suggested Citation

  • Bar-Isaac, Heski & Asker, John, 2016. "Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions," CEPR Discussion Papers 11579, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11579
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    3. Aridor, Guy & Gonçalves, Duarte, 2022. "Recommenders’ originals: The welfare effects of the dual role of platforms as producers and recommender systems," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    4. Garrod, Luke & Olczak, Matthew & Wilson, Chris M., 2020. "Price advertising, double marginalisation and vertical restraints," Economics Letters, Elsevier, vol. 196(C).
    5. Janssen, Maarten & Reshidi, Edona, 2018. "Retail Discrimination in Search Markets," CEPR Discussion Papers 12945, C.E.P.R. Discussion Papers.
    6. Teis Lunde Lømo & Simen A. Ulsaker, 2021. "Lump‐Sum Payments and Retail Services: A Relational Contracting Perspective," Journal of Industrial Economics, Wiley Blackwell, vol. 69(1), pages 131-168, March.
    7. Steven Callander & Dana Foarta & Takuo Sugaya, 2022. "Market Competition and Political Influence: An Integrated Approach," Econometrica, Econometric Society, vol. 90(6), pages 2723-2753, November.
    8. Haan, Marco A. & Heijnen, Pim & Obradovits, Martin, 2023. "Competition with list prices," Games and Economic Behavior, Elsevier, vol. 140(C), pages 502-528.
    9. Robert Clark & Ig Horstmann & Jean-Francois Houde, 2021. "Hub-and-spoke cartels: Theory and evidence from the grocery industry," Working Paper 1473, Economics Department, Queen's University.
    10. Janssen, Maarten & Reshidi, Edona, 2022. "Regulating recommended retail prices," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    11. Elias Deutscher, 2022. "Brand bidding restraints revisited – What is the appropriate economic and legal framework for the antitrust analysis of vertical online search advertising restraints?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2021-09, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    12. Rhodes, Andrew & Watanabe, Makoto & Zhou, Jidong, 2017. "Multiproduct Intermediaries and Optimal Product Range," MPRA Paper 82136, University Library of Munich, Germany.
    13. Maarten Janssen & Edona Reshidi, 2023. "Discriminatory Trade Promotions in Consumer Search Markets," Marketing Science, INFORMS, vol. 42(2), pages 401-422, March.

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    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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