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The Competitive Effects of Price-Floors

Author

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  • Bhaskar, V

Abstract

Using Hotelling's model of locational competition, the author shows that a moderate price floor destroys the maximal differentiation equilibrium, resulting in minimum differentiation. Equilibrium prices are lower than prices in the absence of a floor. A low price floor can lead to multiple equilibria, with both minimum and maximum differentiation as possible outcomes. Copyright 1997 by Blackwell Publishing Ltd

Suggested Citation

  • Bhaskar, V, 1997. "The Competitive Effects of Price-Floors," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 329-340, September.
  • Handle: RePEc:bla:jindec:v:45:y:1997:i:3:p:329-40
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    References listed on IDEAS

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    1. 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.
    2. 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 361-366, May.
    3. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    4. 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.
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    Cited by:

    1. Yasunori Okumura, 2017. "Asymmetric equilibria under price cap regulation," Journal of Economics, Springer, vol. 121(2), pages 133-151, 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;Western Regional Science Association, vol. 52(1), pages 309-324, January.
    3. Volodymyr Bilotkach, 2014. "Price Floors And Quality Choice," Bulletin of Economic Research, Wiley Blackwell, vol. 66(3), pages 231-245, July.
    4. 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;Western Regional Science Association, vol. 50(3), pages 953-971, June.
    5. Liang Guo, 2006. "Consumption Flexibility, Product Configuration, and Market Competition," Marketing Science, INFORMS, vol. 25(2), pages 116-130, 03-04.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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