What Collusion? Unilateral Market Power as a Catalyst for Countercyclical Markups
AbstractThis paper presents and tests a simple model of competitive and unilateral market power regimes that yields countercyclical markups. Following a decrease in demand in the short run, capacity-constrained firms may have a strong incentive not to lower their prices to the new competitive price. Demand shocks may introduce market power into a previously competitive market. Experimental posted offer markets support this conjecture with complete information on the market structure. With only private information, there appears to be a hysteresis effect concerning supracompetitive prices, i.e., markets with a history of supracompetitive pricing continue to generate supracompetitive prices following demand shocks. However, competitive markets also remain competitive following demand shocks when firms only have private information on costs and capacities. Copyright Kluwer Academic Publishers 1998
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Experimental Economics.
Volume (Year): 1 (1998)
Issue (Month): 2 (September)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=102888
countercyclical markups; market power; oligopoly pricing;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Levitan, Richard & Shubik, Martin, 1972.
"Price Duopoly and Capacity Constraints,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-22, February.
- Brown-Kruse, Jamie, et al, 1994. "Bertrand-Edgeworth Competition in Experimental Markets," Econometrica, Econometric Society, vol. 62(2), pages 343-72, March.
- Ketcham, Jon & Smith, Vernon L & Williams, Arlington W, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 595-614, October.
- Douglas D. Davis & Charles A. Holt, 1996. "Price rigidities and institutional variations in markets with posted prices (*)," Economic Theory, Springer, vol. 9(1), pages 63-80.
- Davis, Douglas D. & Holt, Charles A., 2008.
"The Exercise of Market Power in Laboratory Experiments,"
Handbook of Experimental Economics Results,
- Holt, Charles A, 1989. "The Exercise of Market Power in Laboratory Experiments," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages S107-30, October.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Kandori, Michihiro, 1991. "Correlated Demand Shocks and Price Wars during Booms," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 171-80, January.
- Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
- Mestelman, Stuart & Welland, Douglas, 1994. "Price Flexibility and Market Performance in Experimental Markets," Economic Theory, Springer, vol. 4(1), pages 105-29, January.
- Davis, Douglas D. & Wilson, Bart J., 2005. "Differentiated product competition and the Antitrust Logit Model: an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 57(1), pages 89-113, May.
- Douglas D. Davis & Bart J. Wilson, 2006.
"Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation,"
0601, VCU School of Business, Department of Economics.
- Davis, Douglas D. & Wilson, Bart J., 2008. "Strategic buyers, horizontal mergers and synergies: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 643-661, May.
- Abdullah Yavas, 2001. "Impossibility of a Competitive Equilibrium in the Real Estate Brokerage Industry," Journal of Real Estate Research, American Real Estate Society, vol. 21(3), pages 187-200.
- Douglas Davis & Bart Wilson, 2006. "Equilibrium Price Dispersion, Mergers and Synergies: An Experimental Investigation of Differentiated Product Competition," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(2), pages 169-194.
- Bart Wilson in Wikipedia (English)
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.