The relative rigidity of oligopoly pricing

Fisher, Timothy C. G.; Konieczny, Jerzy

doi:10.1016/0165-1765(94)00649-m

Cited by 11 publications

(6 citation statements)

References 8 publications

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“…The problem of interpreting price changes by an informed competitor for obvious reasons does not arise in either a competitive or a monopoly nor a monopolistic competition model. That price rigidities are more important in oligopoly models is well established empirically, see Fisher and Konieczny (1995) who showed that in comparison to monopolies, oligopolies changed prices less often. Further evidence can be found in Carlton and Perloff (1994, chapter 18).…”

Section: Discussionmentioning

confidence: 86%

Prices and Information Under Imperfect Competition

Andersen

Hviid

1999

Scottish J Political Eco

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Imperfectly competitive product markets cannot be informationally efficient as private information has strategic implications interfering with price adjustment. This is illustrated in a duopoly model with sequential price setting where private information either leads to prices not being adjusted to all available information or to adjusted but biased prices. I INTRODUCTIONPrices allocate resources and disseminate information. Competitive markets are usually taken to fulfil these roles efficiently. 1 However, the competitive framework only fits few product markets, and it is an open question how information dissemination interferes with price determination in imperfectly competitive product markets. 2 This problem is non-trivial as prices are also affected by the bid for market share. The aim of this paper is to study how information dissemination interferes with price determination in an imperfectly competitive product market.How would knowledge about market conditions affect price determination when the firm possessing this information realizes that any change in the price will be considered carefully by its competitors, who want to infer whether the change in the price is a bid for market share, or a response to new information on market conditions? As the firm possessing private information is aware that competing firms make inferences from its price, a possibility arises that the firm might use its information strategically. 245Ã University of Aarhus ÃÃ University of Warwick 1 A classical reference is Hayek (1945). For an introduction to the literature on the informational efficiency of capital markets see e.g. Radner (1981). 2 In a model of an asset market with asymmetrically informed speculators and imperfect competition, Kyle (1989) shows that in the rational expectations equilibrium prices reveal less information than in a competitive equilibrium and no longer become fully informative. As the model is a one shot game where all actors choose their strategy simultaneously, any information contained in the prices only reaches the uniformed after they choose their strategy.The most simple product market structure allowing us to capture the strategic implications of private information for price determination is a Stackelberg leader-follower model. It captures the key feature that other firms react to the price set by others within a given period. If the leader has private information the dual role of price determination in an imperfectly competitive market comes to the forefront as it affects market shares and disseminates information. We consider a two-period version of the model where it is assumed that information on market conditions in the first period is common knowledge, while the demand is subject to an unanticipated change which becomes known to the leader before setting the period two price.Imperfect competition turns out to affect information transmission by prices in a way which is qualitatively different from competitive markets. Specifically, prices are either not adjusted to available informati...

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Section: Discussionmentioning

confidence: 86%

Prices and Information Under Imperfect Competition

Andersen

Hviid

1999

Scottish J Political Eco

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“…The theoretical and empirical papers discussed in the previous section suggest that the institutional environment and market structure are critical determinants of firms' pricing decisions. We begin by describing the institutional environment at Microsurf, 8 An exception is Fisher and Konieczny (1995), who find that prices for city newspapers that face no competition are less rigid than the prices of oligopolistic newspapers. 9 See also Roth (1988).…”

Section: The Datamentioning

confidence: 99%

“…Lenders report two qualifying ratios a borrower must satisfy: the maximum allowable housing expense-to-income ratio (mortgage qualifying ratio) and the maximum allowable debt payment-to-income ratio (debt qualifying ratio). 13 For example, a pair of qualifying ratios (0.28, 0.36) means that, to qualify for the posted rate, a borrower cannot spend more than 28 percent of her gross income on mortgage payments, and total debt payments cannot exceed 36 percent of gross income. In the sample, the mortgage qualifying ratio ranges from 0.28 to 0.36 and the debt qualifying ratio ranges from 0.36 to 0.45.…”

Section: The Datamentioning

confidence: 99%

Are Prices 'Sticky' Online? Market Structure Effects and Asymmetric Responses to Cost Shocks in Online Mortgage Markets

Arbatskaya

Baye

2004

SSRN Journal

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We analyze daily mortgage rates posted by online lenders at the price comparison site, Microsurf. While cost shocks occurred almost daily in our sample, quoted mortgage rates are surprisingly rigid: Only 16 percent of the posted rates represent changes. However, firms that adjusted rates in response to cost shocks did so quite rapidly; about 98 percent of a cost shock was passed through within two days of the cost shock. Duration analysis reveals that the observed rigidity in rates systematically depends on market structure: Online mortgage rates are 30 to 40 percent more durable in concentrated markets than in markets where there are many competitors. We also find that rates posted online tend to exhibit downward stickiness; rate adjustments in response to cost increases are about twice the corresponding adjustments for cost decreases.

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“…8 7 In addition to the costs of price adjustment, the inflexibility of prices in response to cost or demand shocks has been explained in the literature by such factors as supply adjustment costs, inventories, long-term contracts, procyclical elasticity of demand, non-price market clearing, imperfect information about product characteristics, and by firms' conduct (e.g., price protection, breaks in collusion during periods of slack in demand). 8 An exception is Fisher and Konieczny (1995), who find that prices for city newspapers that face no competition are less rigid than the prices of oligopolistic newspapers.…”

Section: Theoretical Considerations and Stylized Factsmentioning

confidence: 99%

Are prices ‘sticky’ online? Market structure effects and asymmetric responses to cost shocks in online mortgage markets

Arbatskaya

Baye

2004

International Journal of Industrial Organization

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We analyze daily mortgage rates posted by online lenders at the price comparison site, Microsurf. While cost shocks occurred almost daily in our sample, quoted mortgage rates are surprisingly rigid: Only 16% of the posted rates represent changes. However, firms that adjusted rates in response to cost shocks did so quite rapidly; about 98% of a cost shock was passed through within 2 days of the cost shock. Duration analysis reveals that the observed rigidity in rates systematically depends on market structure: Online mortgage rates are 30% to 40% more durable in concentrated markets than in markets where there are many competitors. We also find that rates posted online tend to exhibit downward stickiness; rate adjustments in response to cost increases are about twice the corresponding adjustments for cost decreases. D

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The relative rigidity of oligopoly pricing

Cited by 11 publications

References 8 publications

Prices and Information Under Imperfect Competition

Prices and Information Under Imperfect Competition

Are Prices 'Sticky' Online? Market Structure Effects and Asymmetric Responses to Cost Shocks in Online Mortgage Markets

Are prices ‘sticky’ online? Market structure effects and asymmetric responses to cost shocks in online mortgage markets

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