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

We consider vertical contracts where the retail market may involve search frictions. Minimum advertised price restrictions (MAP) act as a restraint on customers’ information and so can 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 can allow for higher manufacturer profits than RPM. We show that they 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 to RPM or to the absence of such restrictions. ∗We gratefully acknowledge useful comments from Allan Collard Wexler, Daniel Garcia, Gautam Gowrisankaran, Marco Haan, Bruno Jullien, Robin Lee, Matt Mitchell, Joao Montez, Volker Nocke, Martin Peitz, Patrick Rey, John Riley, Sandro Shelegia, Rona Bar-Isaac and Jidong Zhou and from seminar participants at the U Toronto bag lunch, MACCI 2016, CIRANO Conference on IO 2016, EARIE 2016, CEMFI, TSE, 8th Workshop on Consumer Search and switching Costs, and Barcelona Summer Forum 2017. We thank Rami Abou-Seido and El Hadi Caoui for excellent research assistance and SSHRC (435-2014-0004) for financial support. Email: [email protected] and [email protected]