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An Empirical Analysis of Minimum Advertised Price Restrictions

Author

Listed:
  • Danial Asmat

    (US Department of Justice, Antitrust Division, 450 5th Street NW, Washington, D.C. 20530)

  • Chenyu Yang

    (University of Maryland, Tydings Hall, College Park, MD 20740)

Abstract

Recent theory has examined the competitive effects of minimum advertised price (MAP) restrictions: manufacturer policies that can limit the ability of consumers to search for product prices. In this paper, we empirically study the effect of a major electronics manufacturer's MAP policy on the e-retail prices for its hardware products. Our approach leverages three types of data: contractual MAP values by product from 2011-2013; daily prices across its largest e-retailers; and the frequency of visits to each e-retailer from a representative household panel. We use a model of search with advertised prices to guide two types of findings. First, descriptive patterns of retailer prices are consistent with the market exhibiting consumer search costs, whereby it is costlier to search when price is below MAP than above MAP. Second, reduced form models imply that MAP diminishes the effect of increased retailer competition on decreased price dispersion, whereby prices are up to 6% more dispersed with MAP than without MAP. This is consistent with a model of inter-retailer price discrimination.

Suggested Citation

  • Danial Asmat & Chenyu Yang, 2019. "An Empirical Analysis of Minimum Advertised Price Restrictions," Working Papers 19-07, NET Institute.
    • Handle: RePEc:net:wpaper:1907
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    search cost; vertical restraint; advertised price; resale price maintenance; RPM; electronic retail;
    All these keywords.

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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