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Market Sharing and Price Leadership

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Author Info
Farm, Ante () (Swedish Institute for Social Research, Stockholm University)
Abstract

This paper proposes an alternative to the traditional model of supply and demand in markets where consumers take prices as given. Within the framework of “no side payments and partial preplay communication” firms are assumed to decide non-cooperatively on production and marketing while the market price is set by a competitive price leader, i.e. a firm preferring the lowest market price. Predictions include excess supply and a revenuemaximizing market price in markets where production precedes sales. In markets where sales precede production competitive price leadership predicts monopoly pricing but not necessarily monopoly profits if firms are “sufficiently similar”, while the presence of firms with high costs or low capacities will make it possible for the price leader, in some circumstances, to increase its market share and also its profits by reducing its price. And the threat of costly competition for market shares may reduce the market price even for identical firms.

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Paper provided by Swedish Institute for Social Research in its series Working Paper Series with number 3/2009.

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Length: 34 pages
Date of creation: 12 Mar 2009
Date of revision:
Handle: RePEc:hhs:sofiwp:2009_003

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Related research
Keywords: Pricing; oligopoly; price leadership; market sharing;

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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

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  1. Shapley, Lloyd S & Shubik, Martin, 1969. "Price Strategy Oligopoly with Product Variation," Kyklos, Blackwell Publishing, vol. 22(1), pages 30-44.
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  2. Bhaskar, V., 1989. "Quick responses in duopoly ensure monopoly pricing," Economics Letters, Elsevier, vol. 29(2), pages 103-107. [Downloadable!] (restricted)
  3. Brock, William A & Scheinkman, Jose A, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Blackwell Publishing, vol. 52(3), pages 371-82, July. [Downloadable!] (restricted)
  4. Morten Hviid, 1990. "Sequential capacity and price choices in a duopoly model with demand uncertainty," Journal of Economics, Springer, vol. 51(2), pages 121-144, June. [Downloadable!] (restricted)
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  5. Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-41, August. [Downloadable!] (restricted)
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  6. Osborne, Martin J. & Pitchik, Carolyn, 1986. "Price competition in a capacity-constrained duopoly," Journal of Economic Theory, Elsevier, vol. 38(2), pages 238-260, April. [Downloadable!] (restricted)
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  7. Johansen, Leif, 1982. " On the Status of the Nash Type of Noncooperative Equilibrium in Economic Theory," Scandinavian Journal of Economics, Blackwell Publishing, vol. 84(3), pages 421-41.
  8. Benoit, Jean-Pierre & Krishna, Vijay, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 23-35, January. [Downloadable!] (restricted)
  9. Farm, Ante & Weibull, Jorgen W, 1987. " Perfectly Flexible Pricing in a Homogeneous Market," Scandinavian Journal of Economics, Blackwell Publishing, vol. 89(4), pages 487-95.
  10. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
  11. Farm, Ante, 1988. "Cooperative oligopolistic pricing," European Journal of Political Economy, Elsevier, vol. 4(1), pages 13-28. [Downloadable!] (restricted)
  12. Carlton, Dennis W., 1989. "The theory and the facts of how markets clear: Is industrial organization valuable for understanding macroeconomics?," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 15, pages 909-946 Elsevier. [Downloadable!] (restricted)
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  13. George J. Stigler, 1947. "The Kinky Oligopoly Demand Curve and Rigid Prices," Journal of Political Economy, University of Chicago Press, vol. 55, pages 432. [Downloadable!] (restricted)
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This page was last updated on 2009-12-14.

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