Do MSRPs Decrease Prices?

Abstract

The nature of manufacturer’s suggested retail prices (MSRPs) and whether their effect is pro- or anticompetitive is not well understood. We exploit a policy experiment in which a ban on MSRPs was imposed and then lifted a year later. We show that average prices increased by 2.1 percent as a result of the MSRP ban and decreased by 3.8 percent when the ban was lifted. We find no indication that MSRPs lowered prices by acting as binding price ceilings and outline an alternative mechanism in which recommendations affect prices by nudging more consumers to search. We demonstrate that recommendations can increase search and reduce prices.

Keywords: recommended retail price, suggested retail price, list price, non-binding price, search with uncertainty, vertical restraints, resale price maintenance

JEL Classification: L110, L400, L810