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Title:Making sense of non-binding retail-price recommendations PDF Logo
Authors:Buehler, Stefan
Gärtner, Dennis L.
Issue Date:2010
Series/Report no.:CESifo working paper Industrial Organisation 3024
Abstract:We model non-binding retail-price recommendations (RPRs) as a communication device facilitating coordination in vertical supply relations. Assuming both repeated vertical trade and asymmetric information about production costs, we show that RPRs may be 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. We also extend our analysis to settings where consumer demand is variable or depends directly on the manufacturer's RPRs.
Subjects:vertical relationships
relational contracts
asymmetric information
price recommendations
JEL:D23
D43
L14
L15
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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