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Collusive Price Leadership

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Author Info

  • Rotemberg, Julio J
  • Saloner, Garth

Abstract

The authors study the pattern of pricing in which price changes are first announced by one firm and then matched by its rivals. In their model, this price leadership facilitates collusion under asymmetric information. In equilibrium, the leader earns higher profits than the follower. Nonetheless, if information is sufficiently asymmetric, the less informed firm prefers to follow the better-informed firm, so the leader can emerge endogenously. The authors show that the follower can benefit from price rigidity so that prices may be changed infrequently. They also show that overall welfare may be lower under collusive price leadership than under overt collusion. Copyright 1990 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 39 (1990)
Issue (Month): 1 (September)
Pages: 93-111

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Handle: RePEc:bla:jindec:v:39:y:1990:i:1:p:93-111

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Citations

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Cited by:
  1. Bejger, Sylwester, 2012. "Cartel in the Indian cement industry: An attempt to identify it," Economics Discussion Papers 2012-18, Kiel Institute for the World Economy.
  2. Young, David P. T., 1997. "Dominant firms, price leadership and the measurement of monopoly welfare losses," International Journal of Industrial Organization, Elsevier, vol. 15(5), pages 533-533, August.
  3. Boone, Jan, 2004. "Balance of Power," CEPR Discussion Papers 4733, C.E.P.R. Discussion Papers.
  4. Pastine, Ivan & Pastine, Tuvana, 2001. "Cost of Delay, Deadlines and Endogenous Price Leadership," CEPR Discussion Papers 3054, C.E.P.R. Discussion Papers.
  5. Maier, Tomas, 2012. "Modelling Brewing Industry Pricing," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 4(4), December.
  6. Elmer Sterken, 2006. "Competition in the Dutch Mortgage Market," De Economist, Springer, vol. 154(4), pages 587-600, December.
  7. Lloyd, Tim A., 2008. "Price Leadership in UK Food Retailing: Time Series Representation and Evidence," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36862, Agricultural Economics Society.
  8. Pastine, Ivan & Pastine, Tuvana, 2004. "Cost of delay and endogenous price leadership," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 135-145, January.
  9. Ilir Maçi & Kresimir Zigic, 2008. "Competition Policy and Market Leaders," CERGE-EI Working Papers wp375, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  10. Shakun Datta Mago & Emmanuel Dechenaux, 2009. "Price leadership and firm size asymmetry: an experimental analysis," Experimental Economics, Springer, vol. 12(3), pages 289-317, September.
  11. Cooper, David J., 1997. "Barometric price leadership," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 301-325, May.
  12. Jonathan Beck, 2004. "Fixed, Focal, Fair? Book Prices Under Optional Resale Price Maintenance," CIG Working Papers SP II 2004-15, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  13. Farm, Ante, 2013. "Price Formation in Consumer Markets," Working Paper Series 1/2013, Swedish Institute for Social Research.
  14. Ishibashi, Ikuo, 2008. "Collusive price leadership with capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 704-715, May.
  15. Rojas, Christian, 2005. "Does the King Use Its Power? Price Competition in U.S. Brewing," Research Reports 25172, University of Connecticut, Food Marketing Policy Center.
  16. Marshall, Robert C. & Marx, Leslie M. & Raiff, Matthew E., 2008. "Cartel price announcements: The vitamins industry," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 762-802, May.
  17. Jan Boone, 2005. "Be Nice, unless it Pays to Fight," Working Papers 05-10, Utrecht School of Economics.

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