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Price Competition or Tacit Collusion

Author

Listed:
  • Makoto Yano

    (Institute of Economic Research, Kyoto University)

  • Takashi Komatsubara

    (Institute of Economic Research, Kyoto University)

Abstract

Every now and then, we observe a fierce price war in a real world market, through which competing firms end up with a Bertrand-like price competition equilibrium. Despite this, very little has been known in the existing literature as to why a price competition market is formed. We address this question in the context of a choice between engaging in price competition and holding a price leader. Focusing on a duopoly market, we demonstrate that if supply is tight relative to demand, and if the cost differential between firms is reasonably large, a price competition market is formed non-cooperatively.

Suggested Citation

  • Makoto Yano & Takashi Komatsubara, 2012. "Price Competition or Tacit Collusion," KIER Working Papers 807, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:807
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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP807.pdf
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    References listed on IDEAS

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    Cited by:

    1. Attila Tasnádi, 2016. "Endogenous timing of moves in Bertrand–Edgeworth triopolies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 12(4), pages 317-334, December.
    2. Gustavo Gudino, 2021. "Self-Enforcing Price Leadership," Games, MDPI, vol. 12(3), pages 1-18, July.

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    More about this item

    Keywords

    Keywords: Price Competition; Price Leader; Market Organization Game;
    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
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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