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Title: Collusive price rigidity under price-matching punishments
Authors: Garrod, Luke
Keywords: Tacit collusion
Kinked demand curve
Price rigidity
Issue Date: 2011
Publisher: Royal Economic Society
Citation: GARROD, L., 2011. Collusive price rigidity under price-matching punishments. Royal Economic Society PhD meeting, London, UK, January 2011, 31pp.
Abstract: By 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 high-cost phase, the degree of product differentiation, and the number of firms in the market are also investigated.
Description: This is a conference paper.
Sponsor: The support of the Economic and Social Research Council (UK) is gratefully acknowledged.
Version: Accepted for publication
URI: https://dspace.lboro.ac.uk/2134/16800
Publisher Link: http://www.res.org.uk/
Appears in Collections:Conference Papers (Economics)

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