Applying international reference price - Market structure, information seeking and consumer welfare

Examines the conditions and different structural settings in which a retail er is likely to apply an international reference price strategy to apt impo rted Product. We define the term "international reference price" as an exte rnal reference price that reflects the product's price in different countri es. It can be set by providing true but incomplete information rather than by outright manipulation of the reference price, which may involve providin g consumers with false information. This study offers a model that describe s both the consumer's utility calculations regarding price information seek ing and the retailer's utility calculations regarding the application of in ternational reference price. It is shown that instability of economic marke ts combined with access to information technology motivate consumers to see k information about prices. It is also shown that in unstable markets retai lers have incentive to provide true but incomplete information about the pr oduct's price in another market. In this setting, the retailer's use of an international reference price might actually damage consumer welfare. This potential damage may be reduced by international cooperation to establish e conomic agreements.