Why Suggest Non-Binding Retail Prices ?

@inproceedings{Puppe2009WhySN,
  title={Why Suggest Non-Binding Retail Prices ?},
  author={Clemens Puppe and Stephanie Rosenkranz},
  year={2009}
}
We provide a simple behavioral explanation of why manufacturers frequently announce non-binding suggested retail prices for their products. Our model is based on the assumption that once the actual price for a product exceeds its suggested retail price, the marginal propensity to consume suddenly jumps downward. We show that this may induce a monopolistic retailer to set the price equal to the suggested retail price in equilibrium, although the latter price is non-binding. This, in turn, leads… CONTINUE READING

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