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Price Rigidity and Asymmetric Price Adjustment in a Repeated Oligopoly

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  • Richard Damania
  • Bill Z. Yang
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    Abstract

    Recent empirical studies suggest that prices in highly concentrated industries tend to be rigid and that pricing is often asymmetric with price rises occurring more frequently than price reductions (Domberger [1987]). Existing explanations of price rigidity and asymmetric pricing assume that firms incur "menu costs" when they adjust their prices. There is, however, little empirical evidence to substantiate this assumption. This paper provides an alternative explanation for price rigidity as well as asymmetric price adjustment in the absence of menu costs. In an infinitely repeated duopoly with incomplete information, it is demonstrated that depending on the degree of collusion and parameters, a variety of pricing behaviour emerge in equilibrium.

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    Bibliographic Info

    Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

    Volume (Year): 154 (1998)
    Issue (Month): 4 (December)
    Pages: 659-

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    Handle: RePEc:mhr:jinste:urn:sici:0932-4569(199812)154:4_659:praapa_2.0.tx_2-_

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    Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
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    Cited by:
    1. Ronald Johnson, 2002. "Search Costs, Lags and Prices at the Pump," Review of Industrial Organization, Springer, vol. 20(1), pages 33-50, February.
    2. Mokinski, Frieder & Wölfing, Nikolas, 2013. "The effect of regulatory scrutiny asymmetric cost pass-through in power wholesale and its end," ZEW Discussion Papers 13-055, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Toolsema, Linda A. & Jacobs, Jan, 2001. "Why do prices rise faster than they fall? : with an application to mortgage rates," CCSO Working Papers 200106, University of Groningen, CCSO Centre for Economic Research.
    4. Frieder Mokinski & Nikolas Wölfing, 2014. "The effect of regulatory scrutiny: Asymmetric cost pass-through in power wholesale and its end," Journal of Regulatory Economics, Springer, vol. 45(2), pages 175-193, April.
    5. Jochen Meyer & Stephan Cramon-Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611.

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