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International effects of national regulations: external reference pricing and price controls

Difei Geng and Kamal Saggi ()

No 17-00010, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: Under external reference pricing (ERP) the price that a government permits a firm to charge in its market depends upon the firm's prices in other countries. In a two-country (home and foreign) model where demand is asymmetric across countries, we show that home's unilaterally optimal ERP policy permits the home firm to engage in a threshold level of international price discrimination above which it is (just) willing to export. If the firm faces a price control abroad or bargains over price with the foreign government, an ERP policy can even yield higher home welfare than a direct price control.

Keywords: External reference pricing policies; price controls; patented products; welfare. (search for similar items in EconPapers)
JEL-codes: F1 D4 (search for similar items in EconPapers)
Date: 2017-08-16
New Economics Papers: this item is included in nep-int
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