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Price Competition in an Inflationary Environment

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  • Duersch, Peter
  • Eife, Thomas

Abstract

We study how inflation and deflation affect firms' ability to cooperate in an experimental Bertrand duopoly with differentiated products. We find that there is significantly less cooperation in the treatments with inflation and deflation compared to the no-inflation treatments. The difficulties to cooperate affect prices and welfare: Depending on the market structure, inflation and deflation lead to significantly lower (real) prices and higher welfare.

Suggested Citation

  • Duersch, Peter & Eife, Thomas, 2013. "Price Competition in an Inflationary Environment," Working Papers 0547, University of Heidelberg, Department of Economics.
  • Handle: RePEc:awi:wpaper:0547
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    References listed on IDEAS

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    More about this item

    Keywords

    Bertrand Duopoly; Inflation; Experiment; Money Illusion;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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