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Market Power And Price Movements Over The Business Cycle


  • Bart J. Wilson
  • Stanley S. Reynolds


This paper develops and tests implications of an oligopoly-pricing model. The model predicts that during a demand expansion, the short run competitive price is a pure strategy Nash equilibrium but in a recession, firms set prices above the competitive price. Thus, price markups over the competitive price are countercyclical. Prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions. The empirical analysis utilizes Hamilton's time series switching regime filter to test the predictions of the model. Fourteen out of fifteen industries have fluctuations consistent with this oligopoly-pricing model. Copyright Blackwell Publishing Ltd. 2005.

Suggested Citation

  • Bart J. Wilson & Stanley S. Reynolds, 2005. "Market Power And Price Movements Over The Business Cycle," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 145-174, June.
  • Handle: RePEc:bla:jindec:v:53:y:2005:i:2:p:145-174

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    References listed on IDEAS

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    2. Amit Pazgal & David Soberman, 2008. "Behavior-Based Discrimination: Is It a Winning Play, and If So, When?," Marketing Science, INFORMS, vol. 27(6), pages 977-994, 11-12.
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    8. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    9. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    10. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
    11. Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2011. "History-based price discrimination and entry in markets with switching costs: A welfare analysis," European Economic Review, Elsevier, vol. 55(5), pages 732-739, June.
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    Cited by:

    1. repec:eee:eecrev:v:99:y:2017:i:c:p:170-190 is not listed on IDEAS
    2. Kyle Hyndman, 2004. "Status Quo Effects In Bargaining: An Empirical Analysis of OPEC," Econometric Society 2004 North American Summer Meetings 285, Econometric Society.
    3. Marcelo Sánchez, 2011. "Oil shocks and endogenous markups: results from an estimated euro area DSGE model," International Economics and Economic Policy, Springer, vol. 8(3), pages 247-273, September.
    4. Yossi Spiegel & Konrad O. Stahl, 2014. "Industry Structure and Pricing over the Business Cycle," CESifo Working Paper Series 4848, CESifo Group Munich.
    5. Bretschger, Lucas & Schaefer, Andreas, 2017. "Dirty history versus clean expectations: Can energy policies provide momentum for growth?," European Economic Review, Elsevier, vol. 99(C), pages 170-190.
    6. Spiegel, Yossi & Stahl, Konrad, 2014. "Industry structure and pricing over the business cycle," CEPR Discussion Papers 10009, C.E.P.R. Discussion Papers.
    7. Hyndman, Kyle, 2008. "Disagreement in bargaining: An empirical analysis of OPEC," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 811-828, May.
    8. Sánchez, Marcelo, 2008. "Oil shocks and endogenous markups: results from an estimated euro area DSGE model," Working Paper Series 860, European Central Bank.
    9. Spiegel, Yossi & Stahl, Konrad, 2014. "Industry structure and pricing over the business cycle," ZEW Discussion Papers 14-039, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    10. Cahuc, Pierre & Carcillo, Stéphane & Le Barbanchon, Thomas, 2017. "The Effectiveness of Hiring Credits," IZA Discussion Papers 11248, Institute for the Study of Labor (IZA).

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