Vertical Information Restraints: Pro- and Anticompetitive Impacts of Minimum-Advertised-Price Restrictions

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We consider vertical contracts in which the retail market may involve search frictions. Minimum-advertised-price (MAP) restrictions act as a restraint on customers’ information and can therefore increase search frictions in the retail sector. Such restraints thereby soften retail competition—an impact also generated by resale price maintenance (RPM). However, by accommodating (consumer or retailer) heterogeneity, MAP restrictions can allow for higher manufacturer profits than RPM. We show that these restrictions can do so through facilitating price discrimination among consumers, encouraging service provision, and facilitating manufacturer collusion. Thus, welfare effects may be positive or negative compared with RPM or with the absence of such restrictions.

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