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Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers

Author

Listed:
  • Andrew Sweeting
  • Xuezhen Tao
  • Xinlu Yao

Abstract

We model differentiated product pricing by firms that possess private information about serially-correlated state variables, such as their marginal costs, and can use prices to signal information to rivals. In a dynamic game, we show that signaling can raise prices significantly above static complete information Nash levels, even when the privately observed state variables are restricted to lie in narrow ranges. We calibrate our model using data from the beer industry, and show that our model can explain changes in price levels, price dynamics and cost pass-through after the 2008 MillerCoors joint venture.

Suggested Citation

  • Andrew Sweeting & Xuezhen Tao & Xinlu Yao, 2021. "Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers," NBER Working Papers 28589, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28589
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General

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