Context-dependent preferences and retailing: Vertical restraints on internet sales

Title data

Herweg, Fabian ; Helfrich, Magdalena:
Context-dependent preferences and retailing: Vertical restraints on internet sales.
In: Journal of Behavioral and Experimental Economics. Vol. 87 (2020) . - 101556.
ISSN 2214-8043
DOI: https://doi.org/10.1016/j.socec.2020.101556

Official URL:

Abstract in another language

We provide an explanation for a frequently observed vertical restraint in e-commerce, namely that brand manufacturers partially or completely prohibit that retailers distribute their high-quality products over the internet. We assume that a consumer has context-dependent preferences in the sense that he overvalues a product attribute – quality or price – that stands out in the choice set. Our analysis reveals the following: If online competition determines the margin a retailer can charge at his brick-and-mortar store, he has no incentive to draw consumers’ attention to a product’s high quality. If however, the high-quality branded good is not available online, a retailer can charge a significant markup on it and this markup is higher if consumers focus on quality rather than price. Thus, a ban on online sales aligns a retailer’s incentive with the brand manufacturer’s interest to highlight its relative advantage, quality, and allows the manufacturer to charge a higher wholesale price. Consumer welfare and total welfare, however, are higher if distribution systems that prohibit internet sales are forbidden.

Further data

Item Type:	Article in a journal
Refereed:	Yes
Keywords:	Context-dependent preferences; Decoy good; Internet competition; Relative thinking; Retailing; Selective distribution
Subject classification:	D43; K21; L42
Institutions of the University:	Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Policy Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Policy > Chair Economics VIII: International Competition Policy - Univ.-Prof. Dr. Fabian Herweg Faculties Faculties > Faculty of Law, Business and Economics Faculties > Faculty of Law, Business and Economics > Department of Economics
Result of work at the UBT:	Yes
DDC Subjects:	300 Social sciences 300 Social sciences > 330 Economics
Date Deposited:	05 Nov 2020 07:36
Last Modified:	05 Mar 2024 14:10
URI:	https://eref.uni-bayreuth.de/id/eprint/59218