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The Competitive Effects of Price-Floors

V. Bhaskar
The Journal of Industrial Economics
Vol. 45, No. 3 (Sep., 1997), pp. 329-340
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2950473
Page Count: 12
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The Competitive Effects of Price-Floors
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Abstract

Using Hotelling's model of locational competition, we show that a moderate price-floor destroys the maximal differentiation equilibrium, resulting in minimum differentiation. Equilibrium prices are lower than prices in the absence of a floor. A low price-floor can lead to multiple equilibria, with both minimum and maximum differentiation as possible outcomes.

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