Making Sense of Nonbinding Retail-Price Recommendations
Journal
American Economic Review
ISSN
0002-8282
Type
journal article
Date Issued
2013-02
Author(s)
Abstract
We model retail-price recommendations (RPRs) as a communication device in vertical supply relations with private manufacturer information on production costs and consumer demand. With static trade, RPRs are irrelevant, and the equilibrium outcome is inefficient. With repeated trade, RPRs can become part of a relational contract, communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus. We show that this contract is self-enforcing if the retailer's profit is independent of production costs and punishment strategies are chosen appropriately. The predictions of our analysis are consistent with the available empirical evidence.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
American Economic Association
Publisher place
Nashville
Volume
103
Number
1
Start page
335
End page
359
Pages
25
Subject(s)
Eprints ID
244888