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Who benefits from price indexation?

Author

Listed:
  • Michèle Breton

    (GERAD and HEC Montreal)

  • Mohammed Kharbach

    (Dolphin Energy)

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.

Suggested Citation

  • Michèle Breton & Mohammed Kharbach, 2009. "Who benefits from price indexation?," Economics Bulletin, AccessEcon, vol. 29(4), pages 2732-2737.
    • Handle: RePEc:ebl:ecbull:eb-09-00457
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P27.pdf
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    References listed on IDEAS

    as
    1. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
    2. Neuhoff, K. & von Hirschhausen, C., 2005. "Long-term vs. Short-term Contracts; A European perspective on natural gas," Cambridge Working Papers in Economics 0539, Faculty of Economics, University of Cambridge.
    3. Blaise Allaz & Jean-Luc Vila, 1993. "Cournot Competition, Forward Markets and Efficiency," Post-Print hal-00511806, HAL.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Hotelling; prices; indexation;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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