Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7244436 | Journal of Economic Psychology | 2016 | 36 Pages |
Abstract
We study a model of vertical relations with imperfect retail competition in which a fraction of the consumers display reference-dependent demand with respect to the manufacturer's suggested retail price. We demonstrate that in equilibrium the suggestion will either be undercut or complied with by the retailers, but never surpassed: undercutting occurs if competition is fierce, the impact from consumers affected by reference-dependent preferences is significant, and high price suggestions are credible; compliance occurs otherwise. We provide comparisons, and discuss implications, for consumer surplus for the scenarios with suggested retail prices, without vertical restraints and with resale price maintenance.
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Authors
Simona Fabrizi, Steffen Lippert, Clemens Puppe, Stephanie Rosenkranz,