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The Role of Price Floor in a Differentiated Product Retail Market

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Abstract:

The ability of a manufacturer to enhance competition among its retailers by imposing a price floor was recently introduced in the literature. The purpose of this article is to revisit this anti-collusive explanation of the retail price maintenance in a more general model in which we introduce asymmetric retailers. We find that a manufacturer can amplify the retail market's competition by imposing a price floor when retailers sell differentiated products. This result contradicts the prevailing concept of retail price maintenance.

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