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Edgeworth price cycles

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  • Michael D. Noel

Abstract

Edgeworth price cycles refer to an asymmetric pattern of prices that result from a dynamic pricing equilibrium among competing oligopolists. The resulting time series takes on a sawtooth shape – many small price decreases interrupted only by occasional large price increases. Maskin and Tirole (1988) formalized the theory, and later extensions were provided by Eckert (2003) and Noel (2008). Edgeworth price cycles are the leading theory for explaining the asymmetric price cycles that appear in many US, Canadian, Australian and European retail gasoline markets (e.g. Noel (2007a), Eckert (2002), Doyle et al. (2010), Wang (2009b)). While the gasoline cycles continue to generate public concern with claims of collusion often raised, the current evidence favours Edgeworth price cycles being the result of stronger competition and the source of lower retail gasoline prices.

Suggested Citation

  • Michael D. Noel, 2011. "Edgeworth price cycles," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    • Handle: RePEc:pal:dofeco:v:5:year:2011:doi:3849
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    More about this item

    Keywords

    Markov strategies; Markov perfect equilibria; Cournot model; retail petrol markets;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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