Who benefits from price indexation?

Michèle Breton () and Mohammed Kharbach ()
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Michèle Breton: GERAD and HEC Montreal
Mohammed Kharbach: Dolphin Energy

Economics Bulletin, 2009, vol. 29, issue 4, 2732-2737

Abstract: We consider two products traded in two duopoly markets, where competition is assumed a la Hotelling. Firms A and B are operating in Market 1, while Firm B is also competing in Market 2 with Firm C. Prices in Market 2 are pegged linearly to the average price in Market 1. We show that price indexation has anticompetitive consequences that always benefit Firm A, and that benefit Firm B operating in both markets if the size of the reference market is large enough.

Keywords: Hotelling; prices; indexation (search for similar items in EconPapers)
JEL-codes: L0 Q4 (search for similar items in EconPapers)
Date: 2009-10-29
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