Collusion, Fluctuating Demand, and Price Rigidity*

Hanazono, Makoto; Yang, Huanxing

doi:10.1111/j.1468-2354.2007.00435.x

Cited by 25 publications

(15 citation statements)

References 22 publications

(34 reference statements)

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“…One explanation for this empirical inconsistency might be that these studies assume a monotonic relationship between competition and the frequency of price changes, whereas the relationship may be non-monotonic, as is theoretically argued by Hanazono and Yang (2007). Alternatively, the inconsistency may reflect the fact that these available studies draw on different data bases that are not necessarily comparable.…”

Section: Introductionmentioning

confidence: 58%

Price-setting Behavior and Competition in Developing Countries: an Analysis of Retail Outlets in Lesotho

2018

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We study the relationship between price-setting behavior and the degree of competition in a setting where markets and information flows are relatively imperfect. Using a unique dataset that combines survey data on retail outlets in Lesotho, and detailed historical information on their product prices, we find a non-monotonic relationship between the frequency of price changes and perceived competition, measured by the number of reported competitors. This non-monotonic relationship is consistent with a model of increasing costs of coordinating price changes under tacit collusion with few competitors, and a breakdown of collusion at higher levels of competition. By exploring the nature of the relationship between competition and price rigidity, our study has implications for macroeconomic and competition policy, and underscores the scope for interaction between the two.

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Section: Introductionmentioning

confidence: 58%

Price-setting Behavior and Competition in Developing Countries: an Analysis of Retail Outlets in Lesotho

2018

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“…Second, we want to investigate the effect of the degree of product differentiation on such price rigidity. To the author's knowledge, there is no other model of collusive price rigidity that considers this, since both Athey et al (2004) and Hanazono and Yang (2007) analyse homogeneous products. Third, we want to investigate the effect of the number of firms in the market on such price rigidity, and this ultimately depends upon the degree of product differentiation.…”

Section: An Examplementioning

confidence: 94%

“…In a similar model,Hanazono and Yang (2007) show that price rigidity can also occur with unobservable demand fluctuations.…”

mentioning

confidence: 92%

Collusive price rigidity under price-matching punishments

Garrod¹

2012

International Journal of Industrial Organization

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a b s t r a c tBy analysing an infinitely repeated game where unit costs alternate stochastically between low and high states and where firms follow a price-matching punishment strategy, we demonstrate that the best collusive prices are rigid over time when the two cost levels are sufficiently close. This provides game theoretic support for the results of the kinked demand curve. In contrast to the kinked demand curve, it also generates predictions regarding the level and the determinants of the best collusive price, which in turn has implications for the corresponding collusive profits. The relationships between such price rigidity and the expected duration of a highcost phase, the degree of product differentiation, and the number of firms in the market are also investigated.

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“…5 Thus, firms are concerned to coordinate on allocative (firm) efficiency rather than productive efficiency. This paper is therefore also related to Hanazono and Yang (2007) who analyze the optimal organization of collusion in a model with fluctuating demand and incomplete information in the absence of communication. These authors use a different information/signal structure and find that the most collusive SPPE might imply the use of price rigidity.…”

Section: Introductionmentioning

confidence: 99%

Stochastic market sharing, partial communication and collusion

Gerlach¹

2009

International Journal of Industrial Organization

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This paper analyzes the role of communication between firms in an infinitely repeated Bertrand game in which firms receive private signals of a common value i.i.d. demand shock. It is shown that firms can use stochastic, inter-temporal market sharing as a substitute for communication in low demand states. Partial communication in high demand states is sufficient to achieve the most collusive, full communication outcome and strictly dominates partial communication in low demand states. Communication in high demand states allows firms to coordinate their pricing, choose the most efficient uninformed price and avoid price wars. I demonstrate that under some conditions consumers are better off with communication among colluding firms.

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Collusion, Fluctuating Demand, and Price Rigidity*

Cited by 25 publications

References 22 publications

Price-setting Behavior and Competition in Developing Countries: an Analysis of Retail Outlets in Lesotho

Price-setting Behavior and Competition in Developing Countries: an Analysis of Retail Outlets in Lesotho

Collusive price rigidity under price-matching punishments

Stochastic market sharing, partial communication and collusion

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