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

Author

Listed:
  • Barna Bakó

    (Corvinus University of Budapest)

  • András Kálecz-Simon

    (Corvinus University of Budapest)

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.

Suggested Citation

  • Barna Bakó & András Kálecz-Simon, 2017. "Nothing so Certain as your Anchors? A Consumer Bias that may Lower Prices and Prevent Cartels," Journal of Industry, Competition and Trade, Springer, vol. 17(3), pages 273-282, September.
    • Handle: RePEc:kap:jincot:v:17:y:2017:i:3:d:10.1007_s10842-016-0238-8
    DOI: 10.1007/s10842-016-0238-8
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    More about this item

    Keywords

    Reference price; Anchoring; Consumer bias; Bertrand competition; Collusion;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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