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Regulation through reference prices/Regulación a través de precios de referencia

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  • Alfredo Salgado-Torres

    (Banco de México)

Abstract

We analyze the role of reference prices on competition and welfare in a circular city model where paying prices above a reference negatively affects consumers' utility. Agents interact in a three-stage game. First, a policymaker chooses a reference price; second, firms make their entry decision; finally, firms compete in prices while consumers make their consumption decisions. We find that the market price and the optimal reference price always coincide in equilibrium, reducing consumer prices and implying a net welfare gain.

Suggested Citation

  • Alfredo Salgado-Torres, 2024. "Regulation through reference prices/Regulación a través de precios de referencia," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 39(1), pages 159-201.
    • Handle: RePEc:emx:esteco:v:39:y:2024:i:1:p:159-201
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    File URL: https://estudioseconomicos.colmex.mx/index.php/economicos/article/view/450
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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