77-vol. 39, no. 1, january-june, 2024
Articles

Regulation through reference prices

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  • Alfredo Salgado-Torres
Alfredo Salgado-Torres
Banco de México
DOI: https://doi.org/10.24201/ee.v39i1.450

Published 2024-02-19

Keywords

  • regulation,
  • reference prices,
  • welfare gains

How to Cite

Salgado-Torres, A. (2024). Regulation through reference prices. Estudios Económicos De El Colegio De México, 39(1), 159–201. https://doi.org/10.24201/ee.v39i1.450

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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.

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