Be Nice, unless it Pays to Fight
AbstractThis paper considers industries where a firm or group of firms acts as price leader. It shows that entry in such industries can lead to higher prices through a crowding effect. Further, efficiency gains can lead to higher prices by making it too costly to fight. Mergers that bring the merged firms' efficiency close to that of the price leader(s) lead to higher prices if the merged firm does not belong to the group of price leaders. This is a formalization of joint dominance or coordinated effects. Finally, the model is extended to endogenize the identity of the price leader. This is done by allowing firms to make price announcements.
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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 05-10.
Length: 39 pages
Date of creation: Mar 2005
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Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-05 (All new papers)
- NEP-COM-2005-11-05 (Industrial Competition)
- NEP-MIC-2005-11-05 (Microeconomics)
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