Competition with List Prices

Arbeitspapier

This paper studies the competitive role of list prices. We argue that such prices are often more salient than actual retail prices, so consumers' purchase decisions may be influenced by them. Two firms compete by setting prices in a homogeneous product market. They first set a list price that serves as an upper bound on their retail price. Then, after having observed each other's list price, they set retail prices. Building on the canonical Varian (1980) model, we assume that some consumers observe no prices, some observe all prices, and some only observe list prices. We show that if the latter partially informed consumers use a simple rule of thumb, the use of list prices leads to lower retail prices on average. This effect is weakened if partially informed consumers are rational.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers in Economics and Statistics ; No. 2021-08

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Oligopoly and Other Imperfect Markets
• Subject: list prices ; recommended retail prices ; price competition ; price dispersion ; advertising

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Haan, Marco ; Heijnen, Pim ; Obradovits, Martin
• Event: Veröffentlichung
• (who): University of Innsbruck, Research Platform Empirical and Experimental Economics (eeecon)
• (where): Innsbruck
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/240436
• Last update: 10.03.2025, 11:44 AM CET