The Competitive Effects of Price-Floors
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.
|Date of creation:||02 Sep 1996|
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|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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- d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, .
"On Hotelling's "Stability in competition","
CORE Discussion Papers RP
-385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- 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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