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Advertising and Related Restraints

Asker, John W.; Bar-Isaac, Heski

This article describes those restraints, observed in ecommerce markets, which may be less familiar than other, better-studied in brick-and-mortar markets, vertical restraints, such as resale price maintenance, exclusive dealing arrangements and quantity forcing. A prominent example of a common ecommerce-related restraint is a minimum advertising price (“MAP”) restriction — a restraint whereby a manufacturer limits the price at which a retailer can advertise goods, while placing no restriction on the price actually charged. In an ecommerce context, a price published on the internet constitutes an advertised price, while the price revealed when presenting the shopping basket at checkout may be unconstrained. Since these restraints can make it more difficult for consumers to know what price they will actually end up paying if they make a purchase at a particular retailer, they might work to counteract the price transparency for which ecommerce allows. This article describes the economic and strategic logic underpinning the obfuscation of price information by manufacturers and retailers. The article explains why this logic may be quite different from that associated with more familiar price restraints. This finding is particularly noteworthy in light of recent decisions and statements of the UK’s Competition and Markets Authority (“CMA”) that suggest an equivalence between MAP restrictions and resale price maintenance (“RPM”).

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More About This Work

Academic Units
Economics
Series
Department of Economics Discussion Papers
Published Here
February 8, 2019
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