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

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  • 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.

Suggested Citation

  • John Asker & Heski Bar-Isaac, 2016. "Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions," NBER Working Papers 22771, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22771
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    References listed on IDEAS

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    7. Rhodes, Andrew & Watanabe, Makoto & Zhou, Jidong, 2017. "Multiproduct Intermediaries and Optimal Product Range," MPRA Paper 82136, University Library of Munich, Germany.
    8. Robert Clark & Ignatius Horstmann & Jean-François Houde, 2021. "Hub and Spoke Cartels: Theory and Evidence from the Grocery Industry," NBER Working Papers 29253, National Bureau of Economic Research, Inc.
    9. Garrod, Luke & Olczak, Matthew & Wilson, Chris M., 2020. "Price advertising, double marginalisation and vertical restraints," Economics Letters, Elsevier, vol. 196(C).
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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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