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 language | English |
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Article number | 109600 |
Journal | Economics Letters |
Volume | 196 |
Early online date | 23 Sept 2020 |
DOIs | |
Publication status | Published - Nov 2020 |
Keywords
- Clearinghouse
- Consumer search
- Double marginalisation
- Price advertising
- Vertical restraints