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The Competitive Effects of Price-Floors

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Author Info

  • V. Bhaskar

    (Dept. of Economics University of St. Andrews St.)

  • Andrews KY16 9AL UK

Abstract

We analyze the effects of a legally-binding price floor using Hotelling's model of locational competition. A moderate price-floor destroys the maximal differentiation equilibrium of d'Aspremont et. al., by allowing firms to compete more aggressively for market share. Minimum differentiation results, with lower equilibrium prices. A low price floor results in mulitiple equilibria - both minimum and maximum differentiation are possible.

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File URL: http://128.118.178.162/eps/io/papers/9609/9609001.dvi
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 9609001.

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Length: 28 pages
Date of creation: 02 Sep 1996
Date of revision:
Handle: RePEc:wpa:wuwpio:9609001

Note: Type of Document - Scientific Word generated DVI file; prepared on Pc compatible; to print on any; pages: 28; figures: request from author
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Web page: http://128.118.178.162

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Keywords: product differentiation; vertical restraints;

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References

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  1. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
  2. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  3. Bester, Helmut & de Palma, Andre & Leininger, Wolfgang & Thomas, Jonathan & von Thadden, Ernst-Ludwig, 1996. "A Noncooperative Analysis of Hotelling's Location Game," Games and Economic Behavior, Elsevier, vol. 12(2), pages 165-186, February.
  4. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
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Cited by:
  1. Chia-Hung Sun & Fu-Chuan Lai, 2013. "Hotelling was right with decreasing returns to scale and a coalition-proof refinement," The Annals of Regional Science, Springer, vol. 50(3), pages 953-971, June.
  2. Wen-Chung Guo & Fu-Chuan Lai, 2014. "Spatial competition with quadratic transport costs and one online firm," The Annals of Regional Science, Springer, vol. 52(1), pages 309-324, January.

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