It is shown that a fixed cost of nominal price changes enhances the ability of firms to collude in an ologopolistic market for a homogeneous good. Nevertheless, harsh price competition with firms making no profit remains a possible outcome. The analysis focuses on stable symmetric steady states that can be sustained if firms use strategies that depend only on the previous period price. The collusive outcome under inflation is characterized and the resulting price dynamics is compared to that of an equilibrium in which firms earn zero profit.
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Publisher Info
Paper provided by Toulouse - GREMAQ in its series Papers with number
97.482.
Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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