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Journal of Industry, Competition and Trade

, Volume 17, Issue 3, pp 273–282 | Cite as

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

  • Barna Bakó
  • András Kálecz-Simon
Article
  • 158 Downloads

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.

Keywords

Reference price Anchoring Consumer bias Bertrand competition Collusion 

JEL Classification

D43 D11 C72 

Notes

Acknowledgments

The authors thank Gary Charness, Botond Kőszegi, Miklós Pintér and Agustin Redonda for their remarks on a conference version of this paper. Furthermore, the authors are deeply grateful to anonymous reviewers for their helpful comments and suggestions. The first author gratefully acknowledges financial support from the Hungarian National Research, Development and Innovation Office (NKFI-119930) and from the Hungarian Academy of Sciences (MTA) through the Bolyai János Research Scholarship.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.MTA-BCE ’Lendület’ Strategic Interactions Research Group, Department of MicroeconomicsCorvinus University of BudapestBudapestHungary
  2. 2.Department of MacroeconomicsCorvinus University of BudapestBudapestHungary

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