Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322618 
Year of Publication: 
2003
Series/Report no.: 
Discussion Papers Series No. 03-05
Publisher: 
Utrecht University, Utrecht School of Economics, Tjalling C. Koopmans Research Institute, Utrecht
Abstract: 
Based on arguments of the `reference- dependent' theory of consumer choice we assume that a retailer's discount of a manufacturer's suggested retail price changes consumers' demand. We can show that the producer benefits from suggesting a retail price. If consumers are additionally sufficiently `loss averse', e.g. consumers' disappointment from higher than suggested retail prices is sufficiently high, the producer can force the retailer to take the suggested price in equilibrium and thus capture some of the retailer's profits. A producer always benefits from investing into an advertising campaign with suggested retail prices.Keywords: manufacturer's suggested retail price, vertical product differentiation, advertising, reference dependence, loss aversion
Subjects: 
manufacturer's suggested retail price
vertical product differentiation
advertising
reference dependence
loss aversion
Document Type: 
Working Paper

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