Who benefits from price indexation?
AbstractWe consider two products traded in two duopoly markets, where competition is assumed a la Hotelling. Firms A and B are operating in Market 1, while Firm B is also competing in Market 2 with Firm C. Prices in Market 2 are pegged linearly to the average price in Market 1. We show that price indexation has anticompetitive consequences that always benefit Firm A, and that benefit Firm B operating in both markets if the size of the reference market is large enough.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 29 (2009)
Issue (Month): 4 ()
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Hotelling; prices; indexation;
Find related papers by JEL classification:
- L0 - Industrial Organization - - General
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
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- Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
- Neuhoff, K. & von Hirschhausen, C., 2005. "Long-term vs. Short-term Contracts; A European perspective on natural gas," Cambridge Working Papers in Economics 0539, Faculty of Economics, University of Cambridge.
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