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A Supergame-Theoretic Model of Business Cycles and Price Wars During Booms
Open accessAbstract
TRACTThis paper studies implicitly colluding oligopolists facing fluctuating demand.The credible threat of future punishments provides the discipline that facilitates collusion.However, we find that the temptation to unilaterally deflate from the collusive outcome is often greater when demand is high.To moderate this temptation, the optimizing oligopoly reduces its profitability at such times, resulting in lower prices.If the oligopolists' output is an input to other sectors, their output may increase too.This explains the co-movements of outputs which characterize business cycles.The behavior of the railroads in the 1880's, the automobile industry in the 1950's and the cyclical behavior of cement prices and price-cost margins support our theory.(J.E.L.
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Chapter 17 Empirical studies of industries with market power
Bresnahan, T. F. (1989) · Handbook of Industrial Organization · doi:10.1016/s1573-448x(89)02005-4 · Cited by 1,271
A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles
Maskin, E., & Tirole, J. (1988) · Econometrica · doi:10.2307/1911701 · Cited by 729
Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry, 1890-1914
Genesove, D., & Mullin, W. P. (1998) · The RAND Journal of Economics · doi:10.2307/2555893 · Cited by 393
On the Determinants of Cooperation in Infinitely Repeated Games: A Survey
Dal Bó, P., & Fréchette, G. R. (2018) · Journal of Economic Literature · doi:10.1257/jel.20160980 · Cited by 304
Explicit vs. tacit collusion—The impact of communication in oligopoly experiments
Fonseca, M. A., & Normann, H.-T. (2012) · European Economic Review · doi:10.1016/j.euroecorev.2012.09.002 · Cited by 290
Metadata
- Authors
- Rotemberg, J., & Saloner, G.
- Venue
- National Bureau of Economic Research
- Publisher
- National Bureau of Economic Research
- Published
- 1984-08
- OpenAlex
- W1525737102
- Cited by
- 328
- References
- 0
- Type
- report
- Language
- en
- Open access
- green
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