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Asymmetric Pricing Caused by Collusion

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  • Obradovits Martin

    (Department of Economics, University of Innsbruck, Universitätsstraße 15, 6020 Innsbruck, Austria)

Abstract

In many markets, empirical evidence suggests that positive production cost shocks tend to be transmitted more quickly and fully to final prices than negative ones. This article explains asymmetric price adjustment as caused by firms imperfectly colluding on supra-competitive price levels. I consider an equilibrium in which positive cost shocks are transmitted instantaneously, whereas downward price adjustments only occur once aggregate market demand turns out unexpectedly low. This equilibrium exists whenever demand is sufficiently stable and negative cost shocks are not too large.

Suggested Citation

  • Obradovits Martin, 2024. "Asymmetric Pricing Caused by Collusion," Review of Network Economics, De Gruyter, vol. 23(1), pages 1-26.
    • Handle: RePEc:bpj:rneart:v:23:y:2024:i:1:p:1-26:n:1002
    DOI: 10.1515/rne-2024-0023
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    Cited by:

    1. Javier Tasso, 2019. "The Bigger the Stickier: Asymmetric Adjustment to Negative Demand Shocks," Asociación Argentina de Economía Política: Working Papers 4203, Asociación Argentina de Economía Política.

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    More about this item

    Keywords

    asymmetric pricing; asymmetric price adjustment; rockets and feathers; collusion; cost shocks; stochastic demand;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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