Garrod-2012-Collusive price rigidity under price-matching punishments-CC-BY.pdf (517.9 kB)
0/0

Collusive price rigidity under price-matching punishments

Download (517.9 kB)
journal contribution
posted on 29.05.2014 by Luke Garrod
By analysing an infinitely repeated game where unit costs alternate stochastically between low and high states and where firms follow a price-matching punishment strategy, we demonstrate that the best collusive prices are rigid over time when the two cost levels are sufficiently close. This provides game theoretic support for the results of the kinked demand curve. In contrast to the kinked demand curve, it also generates predictions regarding the level and the determinants of the best collusive price, which in turn has implications for the corresponding collusive profits. The relationships between such price rigidity and the expected duration of a high-cost phase, the degree of product differentiation, and the number of firms in the market are also investigated.

Funding

This work was supported by the Engineering and Physical Sciences Research Council (EPSRC).

History

School

  • Business and Economics

Department

  • Economics

Citation

GARROD, L., 2012. Collusive price rigidity under price-matching punishments. International Journal of Industrial Organization, 30 (5), pp.471-482.

Publisher

© Elsevier

Version

VoR (Version of Record)

Publication date

2012

Notes

This is an Open Access Article. It is published by Elsevier under the Creative Commons Attribution 3.0 Unported Licence (CC BY). Full details of this licence are available at: http://creativecommons.org/licenses/by/3.0/

ISSN

0167-7187

Language

en

Exports

Logo branding

Exports