Jason J. Lepore
Department of Economics
One Shields Ave
Davis, CA 95616
NBER Working Papers and Publications
|October 2006||Tacit Collusion in the Presence of Cyclical Demand and Endogenous Capacity Levels|
with Christopher R. Knittel: w12635
We analyze tacit collusion in an industry characterized by cyclical demand and long-run scale decisions; firms face deterministic demand cycles and choose capacity levels prior to competing in prices. Our focus is on the nature of prices. We find that two types of price wars may exist. In one, collusion can involve periods of mixed strategy price wars. In the other, consistent with the Rotemberg and Saloner (1986) definition of price wars, we show that collusive prices can also become countercyclical. We also establish pricing patterns with respect to the relative prices in booms and recessions. If the marginal cost of capacity is high enough, holding current demand constant, prices in the boom will be generally lower than the prices in the recession; this reverses the results of Haltiwang...
Published: Knittel, Christopher R. & Lepore, Jason J., 2010.
"Tacit collusion in the presence of cyclical demand and endogenous capacity levels,"
International Journal of Industrial Organization,
Elsevier, vol. 28(2), pages 131-144, March.
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