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Price Competition in an Inflationary Environment

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  • Duersch, Peter
  • Eife, Thomas

Abstract

We study how inflation and deflation affect firms' ability to cooperate in an experimental Bertrand duopoly with differentiated products. We find that there is significantly less cooperation in the treatments with inflation and deflation compared to the no-inflation treatments. The difficulties to cooperate affect prices and welfare: Depending on the market structure, inflation and deflation lead to significantly lower (real) prices and higher welfare.

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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0547.

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Date of creation: 13 Aug 2013
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Handle: RePEc:awi:wpaper:0547

Note: This paper is part of http://archiv.ub.uni-heidelberg.de/volltextserver/view/schriftenreihen/sr-3.html
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Keywords: Bertrand Duopoly; Inflation; Experiment; Money Illusion;

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  1. Ernst Fehr & Jean-Robert Tyran, . "Does Money Illusion Matter?," IEW - Working Papers 012, Institute for Empirical Research in Economics - University of Zurich.
  2. Ernst Fehr & Jean-Robert Tyran, 2004. "Money illusion and coordination failure," University of St. Gallen Department of Economics working paper series 2004 2004-02, Department of Economics, University of St. Gallen.
  3. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1998. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," Industrial Organization 9803004, EconWPA.
  4. Etienne Gagnon, 2007. "Price setting during low and high inflation: evidence from Mexico," International Finance Discussion Papers 896, Board of Governors of the Federal Reserve System (U.S.).
  5. Özgür Gürerk & Reinhard Selten, 2012. "The effect of payoff tables on experimental oligopoly behavior," Experimental Economics, Springer, vol. 15(3), pages 499-509, September.
  6. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
  7. Ernst Fehr & Jean-Robert Tyran, 2004. "Limited Rationality and Strategic Interaction - The Impact of the Strategic Environment on Nominal Inertia," Levine's Bibliography 122247000000000092, UCLA Department of Economics.
  8. Dixit, Avinash, 1979. "Quality and Quantity Competition," Review of Economic Studies, Wiley Blackwell, vol. 46(4), pages 587-99, October.
  9. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  10. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  11. Christoph Engel, 2006. "How Much Collusion. A Meta-Analysis On Oligopoly Experiments," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_27, Max Planck Institute for Research on Collective Goods.
  12. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers 334, University of Pittsburgh, Department of Economics, revised Jun 2014.
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