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Industry structure and pricing over the business cycle

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  • Spiegel, Yossi
  • Stahl, Konrad

Abstract

We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is a first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is a first mover. Moreover, our results show that entry deterrence by the incumbent firm can either amplify or dampen the effect of demand fluctuations on prices, price-cost margins, and capacity utilization.

Suggested Citation

  • Spiegel, Yossi & Stahl, Konrad, 2014. "Industry structure and pricing over the business cycle," ZEW Discussion Papers 14-039, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:14039
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    References listed on IDEAS

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    Cited by:

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    5. Jael, Paul, 2014. "Full Cost, Profit and Competition," MPRA Paper 59630, University Library of Munich, Germany.

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    More about this item

    Keywords

    price competition; business cycle; entry; entry deterrence;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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