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Asymmetric Pricing Caused by Collusion

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  • Obradovits, Martin

Abstract

In many markets, empirical evidence suggests that positive production cost shocks are transmitted more quickly and fully to final prices than negative ones. This article explains asymmetric price adjustment caused by firms imperfectly colluding on supra-competitive price levels. While positive cost shocks are transmitted instantaneously, negative price adjustments only occur once aggregate market demand turns out unexpectedly low. In equilibrium, this can be supported whenever demand is sufficiently stable, and negative cost shocks are not too large.

Suggested Citation

  • Obradovits, Martin, 2014. "Asymmetric Pricing Caused by Collusion," MPRA Paper 58889, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58889
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    File URL: https://mpra.ub.uni-muenchen.de/58889/1/MPRA_paper_58889.pdf
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    References listed on IDEAS

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    Cited by:

    1. Javier Tasso, 2019. "The Bigger the Stickier: Asymmetric Adjustment to Negative Demand Shocks," Asociación Argentina de Economía Política: Working Papers 4203, Asociación Argentina de Economía Política.

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    More about this item

    Keywords

    asymmetric price adjustment; asymmetric pricing; rockets and feathers; collusion; price transmission;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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