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Retailers' control of reference price given product category and level of competition

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This paper examines the conditions that make reference price manipulation beneficial to retailers. The paper offers a modelling approach that is based on two distinct dimensions: product category, and degree of market competition. The model shows that reference price manipulation in a competitive market is less beneficial to retailers than it is in a monopolistic market. Reference price manipulation of a specific product is most advantageous to retailers when it is a frequently purchased, low-priced product in a monopolistic market. For an infrequently purchased, high-priced product in a competitive market, reference price manipulation is less beneficial. The analysis gives rise to policy implications that could potentially improve consumer welfare.
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Keywords: CONSUMER WELFARE; MODELLING REFERENCE PRICE; REFERENCE PRICE MANIPULATION

Document Type: Research Article

Publication date: 01 October 2001

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