The Competitive Effects of Price-Floors
University of Essex
We analyze the effects of a legally-binding price floor using Hotelling's model of locational competition. A moderate price-floor destroys the maximal differentiation equilibrium of d'Aspremont et. al., by allowing firms to compete more aggressively for market share. Minimum differentiation results, with lower equilibrium prices. A low price floor results in multiple equilibria - both minimum and maximum differentiation are possible.
JEL Classification: L13, L15, L42working papers series
Date posted: October 9, 1996
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