Nothing so Certain as your Anchors? A Consumer Bias that may Lower Prices and Prevent Cartels

Nothing so Certain as your Anchors? A Consumer Bias that may Lower Prices and Prevent Cartels In this paper, we investigate the effect of reference prices on oligopolistic firms’ behavior. Specifically, we analyze pricing strategies and equilibrium outcomes when differentiated firms compete in Bertrand fashion and reference prices act as anchors. We show that anchoring may lower the prices charged in the long run. Furthermore, we claim that the existence of anchoring makes collusion less stable. This might have implications on the optimal allocation of regulatory resources. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png "Journal of Industry, Competition and Trade" Springer Journals

Nothing so Certain as your Anchors? A Consumer Bias that may Lower Prices and Prevent Cartels

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Publisher
Springer Journals
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Economics; Industrial Organization; Economic Policy; R & D/Technology Policy; European Integration; Microeconomics; International Economics
ISSN
1566-1679
eISSN
1573-7012
D.O.I.
10.1007/s10842-016-0238-8
Publisher site
See Article on Publisher Site

Abstract

In this paper, we investigate the effect of reference prices on oligopolistic firms’ behavior. Specifically, we analyze pricing strategies and equilibrium outcomes when differentiated firms compete in Bertrand fashion and reference prices act as anchors. We show that anchoring may lower the prices charged in the long run. Furthermore, we claim that the existence of anchoring makes collusion less stable. This might have implications on the optimal allocation of regulatory resources.

Journal

"Journal of Industry, Competition and Trade"Springer Journals

Published: Dec 22, 2016

References

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