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LeChatelier–Samuelson principle in games and pass-through of shocks

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  • Alexandrov, Alexei
  • Bedre-Defolie, Özlem

Abstract

The LeChatelier–Samuelson principle states that, as a reaction to a shock, an agent's short-run adjustment of an affected action is smaller than its long-run adjustment (when the agent can also adjust other related actions). We extend the principle to strategic environments where the long-run adjustment also accounts for other players adjusting their strategies. We show that the principle holds for supermodular games (strategic complements) satisfying monotone comparative statics and provide sufficient conditions for the principle to hold in games of strategic substitutes/heterogeneity. We discuss the principle's implications for cost pass-through of multiproduct firms.

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  • Alexandrov, Alexei & Bedre-Defolie, Özlem, 2017. "LeChatelier–Samuelson principle in games and pass-through of shocks," Journal of Economic Theory, Elsevier, vol. 168(C), pages 44-54.
    • Handle: RePEc:eee:jetheo:v:168:y:2017:i:c:p:44-54
    DOI: 10.1016/j.jet.2016.11.006
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    2. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
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    More about this item

    Keywords

    LeChatelier principle; Cost passthrough; Multiproduct oligopoly;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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