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Collusive Price Leadership

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Author Info
Rotemberg, Julio J
Saloner, Garth

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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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Publisher Info
Article provided by Blackwell Publishing 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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  1. Boone, J., 2004. "Balance of power," Discussion Paper 21, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. 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). [Downloadable!]
  4. Pastine, Ivan & Pastine, Tuvana, 2001. "Cost of Delay, Deadlines and Endogenous Price Leadership," CEPR Discussion Papers 3054, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. 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. [Downloadable!]
  6. Jan Boone, 2005. "Be Nice, unless it Pays to Fight," Working Papers 05-10, Utrecht School of Economics. [Downloadable!]
  7. Elmer Sterken, 2006. "Competition in the Dutch Mortgage Market," De Economist, Springer, vol. 154(4), pages 587-600, December. [Downloadable!] (restricted)
  8. Lloyd, Tim, 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. [Downloadable!]
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