Regulation through reference prices
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 decisio...
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| Format: | Article |
| Language: | English |
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El Colegio de México, A.C.
2024-02-01
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| Series: | Estudios Económicos |
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| Online Access: | https://estudioseconomicos.colmex.mx/index.php/economicos/article/view/450 |
| Summary: | 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.
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| ISSN: | 0188-6916 0186-7202 |