Retailer companies sell many products for which manufacturers have a suggested retail price printed on the package. Is there an economic reason for this? If I am the manager of a retailing outlet, what factors will determine whether I should charge the suggested retail price or some higher or lower price?

 

Manufacturer's suggested retail price (MSRP) is generally the maximum price at which a retailer may get for the product. It is the price suggested by the manufacturer that is printed on the packaging of any product. The economic reason for this would be controlling the retailers from charging high prices from the customers.

A retailer cannot sell products when charging a higher price than the manufacturer's suggested retail price as customers will not agree to buy the product at that price.

Few factors that affect the price charged by the retailer would be:

• If the retailer's margin is high on any product, a retailer can charge a price lower than the manufacturer's suggested retail price.
• If there are no close substitutions and there is a higher margin, the retailer will prefer to sell the product at a price suggested by the manufacturer, and so on.