The Competitive Effects of Price‐Floors

V. Bhaskar

Journal of Industrial Economics, 1997, vol. 45, issue 3, 329-340

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.

Date: 1997
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