The Competitive Effect of Manufacturer’s Suggested Retail Prices on Processed Food Products in Korea

This paper empirically tests the effect of the practice of manufacturer’s suggested retail prices (SRPs) has on retail prices in processed food markets in Korea. In July 2010, the Korean Ministry of Knowledge Economy (MKE) banned SRP for four categories of processed food products, but a year later permitted the practice again after experiencing price soars. We construct a system of reduced-form price equations for biscuit, snack food, chocolate pie, ice-cream and ice-cream cone, and test the price effect of the policy shift. It is found that banning SRPs tends to significantly decrease the relevant retail prices.