Abstract
AbstractA retail search model of Salop and Stiglitz (1977) is adapted to analyze manufacturer incentives for resale price maintenance. For some retailer cost functions and distributions of consumer search costs, imposition of a minimum price for retailers causes a price distribution to collapse to an intermediate price. Manufacturers may benefit from price floors when sales to high‐search‐cost consumers that have obtained lower prices increase sufficiently so as to offset decreased sales to other consumers facing higher prices. In contrast to previous work, no free‐riding problem with respect to dealer services is necessary for manufacturers to prefer banning discounting of their products.
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