RESALE PRICE MAINTENANCE VERSUS DELEGATION, UNDER ASYMMETRIC INFORMATION

Authors

  • TATSUHIKO NARIU,

    1. Graduate School of Business and Administration, Kyoto University
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  • DONGJOON LEE

    1. Nagoya University of Commerce and Business
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    • We wish to acknowledge the helpful suggestions of Editor Eyal Winter and an anonymous referee, whose insightful comments led to the improvement of the exposition and correction of some mistakes in a previous version of the paper. We also thank David Flath for useful comments and improvement. This research is supported by Japan Society for the Promotion of Science, Grant-in-Aid for Scientific Research (B), grant No. 22330128.


  • Manuscript received 2.3.10; final version received 5.3.11.

Abstract

In this paper we analyze vertical restraints by two manufacturers in which each sells through a separate retailer who has private information on the uncertain demand it faces. The degree of product differentiation plays an important role in equilibrium. If the products are differentiated, the dominant strategy is for each manufacturer to itself stipulate the retail price of its products. If the products are homogeneous, there exist two equilibria: either both manufacturers impose retail price maintenance (RPM), or both delegate pricing to the retailer. Social welfare is greater under regulatory regimes that permit RPM, irrespective of product differentiation or demand uncertainty.

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