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
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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