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Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers

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  • Andrew Sweeting
  • Xuezhen Tao
  • Xinlu Yao

Abstract

We model repeated pricing by differentiated product firms when each firm has private information about its serially correlated marginal cost. In a fully separating equilibrium of the dynamic game, signaling incentives can lead equilibrium prices to be significantly above those in a static, complete information game, even when the possible variation in the privately observed state variables is very limited. We calibrate our model using data from the beer industry and show that, without any change in conduct, our model can explain increases in price levels and changes in price dynamics and cost pass-through after the 2008 MillerCoors joint venture.

Suggested Citation

  • Andrew Sweeting & Xuezhen Tao & Xinlu Yao, 2024. "Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers," American Economic Journal: Microeconomics, American Economic Association, vol. 16(3), pages 345-373, August.
    • Handle: RePEc:aea:aejmic:v:16:y:2024:i:3:p:345-73
    DOI: 10.1257/mic.20220051
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    References listed on IDEAS

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    1. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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