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

Barna Bakó and András Kálecz-Simon ()
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András Kálecz-Simon: Corvinus University of Budapest

Journal of Industry, Competition and Trade, 2017, vol. 17, issue 3, No 2, 273-282

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: C72 D11 D43 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10842-016-0238-8

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