Edgeworth price cycles
AbstractEdgeworth price cycles refer to an asymmetric pattern of prices that result from a dynamic pricing equilibrium among competing oligopolists. The resulting time series takes on a sawtooth shape – many small price decreases interrupted only by occasional large price increases. Maskin and Tirole (1988) formalized the theory, and later extensions were provided by Eckert (2003) and Noel (2008). Edgeworth price cycles are the leading theory for explaining the asymmetric price cycles that appear in many US, Canadian, Australian and European retail gasoline markets (e.g. Noel (2007a), Eckert (2002), Doyle et al. (2010), Wang (2009b)). While the gasoline cycles continue to generate public concern with claims of collusion often raised, the current evidence favours Edgeworth price cycles being the result of stronger competition and the source of lower retail gasoline prices.
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This chapter was published in: Steven N. Durlauf & Lawrence E. Blume (ed.) , , pages , 2011, 1st quarter update.
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Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
- L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
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- David P.Byrne & Roger Ware, 2011. "Price Cycles and Price Leadership in Gasoline Markets: New Evidence from Canada," Department of Economics - Working Papers Series 1124, The University of Melbourne.
- Beare, Brendan K. & Seo, Juwon, 2012. "Time irreversible copula-based Markov Models," University of California at San Diego, Economics Working Paper Series qt31f8500p, Department of Economics, UC San Diego.
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