Advertising Information, Advertising Precision and Resale Price Maintenance

As consumers use the retail price as an estimator of product quality, the producer expects the retail price to efficiently signal the quality information. However, in the presence of price competition among retailers, consumers cannot predict quality by observing prices because they cannot identify...

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Bibliographic Details
Published inThe journal of applied business and economics Vol. 21; no. 2; pp. 165 - 173
Main Authors Wu, Sheng-Yeh, Lin, Suli, Chen, Guan-Ru, Hsu, Kai-Chi, Heish, Liang-Yu
Format Journal Article
LanguageEnglish
Published Thunder Bay North American Business Press 12.05.2019
Subjects
Advertising
Advertising expenditures
Antitrust
Brand loyalty
Competition
Equilibrium
Expected utility
Inventory
Marketing
Pricing policies
Product quality
Resale price maintenance
Retail stores
United States > US
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Summary:As consumers use the retail price as an estimator of product quality, the producer expects the retail price to efficiently signal the quality information. However, in the presence of price competition among retailers, consumers cannot predict quality by observing prices because they cannot identify whether the price discounts result from quality downgrade, or just retail supply's increase. Since market price movements send noises over quality judgement, the producer uses resale price maintenance to control noises from retail supply. When resale price maintenance is prohibited by antitrust law, a rational expectations model predicts that the manufacturer can replace resale price maintenance with advertising.
ISSN:1499-691X
1499-691X
DOI:10.33423/jabe.v21i1.1462