Price advertising, double marginalisation and vertical restraints

Luke Garrod, Matthew Olczak, Chris M. Wilson*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The developing literature on consumer information and vertical relations has yet to consider information provision via costly retail price advertising. By exploring this, we show that the double marginalisation problem exists in equilibrium despite an upstream supplier offering a two-part tariff. Intuitively, the supplier elicits higher retail prices to strategically reduce retailers’ advertising expenditure in order to extract additional rents. We then demonstrate how vertical restraints, such as resale price maintenance, can increase supply-chain profits and consumer welfare by lowering retail prices despite paradoxically discouraging price advertising.

Original languageEnglish
Article number109600
JournalEconomics Letters
Volume196
Early online date23 Sep 2020
DOIs
Publication statusPublished - Nov 2020

Keywords

  • Clearinghouse
  • Consumer search
  • Double marginalisation
  • Price advertising
  • Vertical restraints

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