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
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Bibliographic InfoArticle provided by Springer in its journal Experimental Economics.
Volume (Year): 1 (1998)
Issue (Month): 2 (September)
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Web page: http://www.springerlink.com/link.asp?id=102888
countercyclical markups; market power; oligopoly pricing;
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