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Be Nice, unless it Pays to Fight

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Author Info
Jan Boone ()

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Abstract

This 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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Paper provided by Utrecht School of Economics in its series Working Papers with number 05-10.

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Length: 39 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:use:tkiwps:0510

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Related research
Keywords: price leadership; mergers; joint dominance; coordinated effects; endogenous price leadership;

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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Klette, T.J., 1998. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Memorandum 15/1998, Oslo University, Department of Economics.
    Other versions:
  2. Stiglitz, Joseph E., 1989. "Imperfect information in the product market," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 13, pages 769-847 Elsevier. [Downloadable!] (restricted)
  3. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May. [Downloadable!] (restricted)
  4. Deneckere, Raymond J & Kovenock, Dan, 1992. "Price Leadership," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 143-62, January. [Downloadable!] (restricted)
    Other versions:
    • Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  5. 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.
  6. Kirman, Alan & Schueller, Nathalie, 1990. "Price Leadership and Discrimination in the European Car Market," Journal of Industrial Economics, Blackwell Publishing, vol. 39(1), pages 69-91, September. [Downloadable!] (restricted)
    Other versions:
  7. Rabah Amir, 2000. "On the Effects of Entry in Cournot Markets," Econometric Society World Congress 2000 Contributed Papers 1475, Econometric Society. [Downloadable!]
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  8. Deneckere, Raymond J & Kovenock, Dan & Lee, Robert, 1992. "A Model of Price Leadership Based on Consumer Loyalty," Journal of Industrial Economics, Blackwell Publishing, vol. 40(2), pages 147-56, June. [Downloadable!] (restricted)
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  9. Rotemberg, Julio J & Saloner, Garth, 1990. "Collusive Price Leadership," Journal of Industrial Economics, Blackwell Publishing, vol. 39(1), pages 93-111, September. [Downloadable!] (restricted)
  10. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September. [Downloadable!] (restricted)
  11. Paul A. Geroski, 1989. "The Effect of Entry on Profit Margins in the Short and Long Run," Annales d'Economie et de Statistique, ADRES, issue 15-16, pages 16, Juillet-D. [Downloadable!]
  12. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February. [Downloadable!] (restricted)
  13. Jeremy Bulow & Paul Klemperer, 2002. "Prices and the Winner's Curse," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 1-21, Spring.
    Other versions:
  14. Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January. [Downloadable!] (restricted)
  15. Ashenfelter, Orley & Sullivan, Daniel, 1987. "Nonparametric Tests of Market Structure: An Application to the Cigarette Industry," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 483-98, June. [Downloadable!] (restricted)
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