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Dynamic Price Adjustment Under Imperfect Competition

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Author Info
Curtis Eberwein (McGill University)
Ted To (University of Warwick)

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Abstract

We study dynamic price adjustment under imperfect competition when consumers have non-time-separable preferences. In our model an intertemporal link arises in the consumers' maximization problems because current consumption decisions affect the utility of future consumption. Thus future demand depends on the current price and firms must take this into account when making their decisions. The main result is that equilibrium prices follow a dynamic stochastic process in which the current price depends on past prices and on random disturbances. The convergence of prices to the `long run expected price' is monotonic if current and future consumption are substitutes and oscillatory if they are complements.

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Publisher Info
Paper provided by EconWPA in its series Industrial Organization with number 9803002.

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Length: 26 pages
Date of creation: 16 Mar 1998
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Handle: RePEc:wpa:wuwpio:9803002

Note: Type of Document - Tex generated DVI file; prepared on IBM PC - mikTeX; to print on any; pages: 26 ; figures: none
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Related research
Keywords: dynamic pricing; oligopoly; overlapping generations;

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Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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  16. Deaton, Angus & Laroque, Guy, 1992. "On the Behaviour of Commodity Prices," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 1-23, January. [Downloadable!] (restricted)
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  17. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
    Other versions:
  18. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 61, Chicago - Center for Study of Economy and State.
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  19. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October. [Downloadable!] (restricted)
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    Other versions:
  21. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February. [Downloadable!] (restricted)
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