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Market Power And Price Movements Over The Business Cycle

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  • Bart J. Wilson
  • Stanley S. Reynolds

Abstract

This paper develops and tests implications of an oligopoly-pricing model. The model predicts that during a demand expansion, the short run competitive price is a pure strategy Nash equilibrium but in a recession, firms set prices above the competitive price. Thus, price markups over the competitive price are countercyclical. Prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions. The empirical analysis utilizes Hamilton's time series switching regime filter to test the predictions of the model. Fourteen out of fifteen industries have fluctuations consistent with this oligopoly-pricing model. Copyright Blackwell Publishing Ltd. 2005.

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Bibliographic Info

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

Volume (Year): 53 (2005)
Issue (Month): 2 (06)
Pages: 145-174

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Handle: RePEc:bla:jindec:v:53:y:2005:i:2:p:145-174

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

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Cited by:
  1. Hyndman, Kyle, 2008. "Disagreement in bargaining: An empirical analysis of OPEC," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 811-828, May.
  2. Sánchez, Marcelo, 2008. "Oil shocks and endogenous markups: results from an estimated euro area DSGE model," Working Paper Series 0860, European Central Bank.
  3. Kyle Hyndman, 2005. "Status Quo Effects in Bargaining: An Empirical Analysis of OPEC," Industrial Organization 0511016, EconWPA.
  4. Yossi Spiegel & Konrad O. Stahl, 2014. "Industry Structure and Pricing over the Business Cycle," CESifo Working Paper Series 4848, CESifo Group Munich.
  5. Marcelo Sánchez, 2011. "Oil shocks and endogenous markups: results from an estimated euro area DSGE model," International Economics and Economic Policy, Springer, vol. 8(3), pages 247-273, September.

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