The Competitive Effects of Price-Floors |
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Authors: | V. Bhaskar |
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Abstract: | Using Hotelling's model of locational competition, we show 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. |
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