Discussion Paper Details

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Title: The Manufacturer's Suggested Retail Price

Author(s): Stephanie Rosenkranz

Publication Date: June 2003

Keyword(s): advertising, loss aversion, manufacturer's suggested retail price, reference dependence and vertical product differentiation

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Rosenkranz, S. 2003. 'The Manufacturer's Suggested Retail Price'. London, Centre for Economic Policy Research.