Antitrust policy , collusion , information exchange , price announcements
Abstract:
We study the welfare effects of non-binding advance price announcements. Applying a
differentiated Bertrand model with horizontal products and asymmetric information, we find
that such announcements can help firms to gain information on each other thereby allowing
them to achieve higher profits. However, our results also show that the overall welfare effects of such announcements in a context of heterogeneous products are not as clear-cut as previous research in a homogeneous products framework has suggested. We conclude that – although non-binding advance price announcements may raise competition concerns – in many settings, their positive effects are likely to outweigh the potential detrimental effects on welfare.
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