[go: up one dir, main page]

IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/2057.html
   My bibliography  Save this paper

Business Cycles and Oligopoly Supergames: Some Empirical Evidence on Prices and Margins

Author

Listed:
  • Ian Domowitz
  • R. Glenn Hubbard
  • Bruce C. Petersen
Abstract
There has been a significant interest on a theoretical level in the application of supergames to oligopoly behavior. Implications for pricing behavior in trigger-strategy models in response to aggregate demand are of particular importance for public policy considerations. We contrast the predictions for the movements of industry prices over the business cycle of two such models -- put forth by Edward Green and Robert Porter and by Julio Rotemberg and Garth Saloner -- and test the predictions using a panel data set of U.S. manufacturing industries. Our principal findings are four. First, the levels of price-cost margins of concentrated, homogeneous-goods industries, while higher than those of unconcentrated counterparts, appear to be closer to those predicted by a single-period Cournot-Nash equilibrium than monopoly. Second, there is little evidence to support the idea that price-cost margins of these industries have different cyclical patterns from other industries apart from effects by level of industry concentration. Maximum price declines for concentrated industries give little support for the occurrence of price wars during either recessions or booms. Finally, consistent with the predictions of the Rotemberg-Saloner model, the industries with high price-cost margins have more countercyclical price movements than those exhibited by other industries. That gradual price adjustment is quantitatively important for those industries, suggests, however, that other factors may lie behind the apparent rigidity of prices.

Suggested Citation

  • Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and Oligopoly Supergames: Some Empirical Evidence on Prices and Margins," NBER Working Papers 2057, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2057
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w2057.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
    2. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    3. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1986. "The Intertemporal Stability of the Concentration-Margins Relationship," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 13-34, September.
    4. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    5. Friedman, James W., 1985. "Cooperative equilibria in finite horizon noncooperative supergames," Journal of Economic Theory, Elsevier, vol. 35(2), pages 390-398, August.
    6. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    7. R. Glenn Hubbard & Robert J. Weiner, 1985. "Nominal Contracting and Price Flexibility in Product Markets," NBER Working Papers 1738, National Bureau of Economic Research, Inc.
    8. Radner, Roy, 1980. "Collusive behavior in noncooperative epsilon-equilibria of oligopolies with long but finite lives," Journal of Economic Theory, Elsevier, vol. 22(2), pages 136-154, April.
    9. Porter, Robert H, 1985. "On the Incidence and Duration of Price Wars," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 415-426, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Schwartz, Lisa A. & Willett, Lois Schertz, 1994. "Price Transmission Theory And Applications To Agroindustry: An Annotated Bibliography," Research Bulletins 123003, Cornell University, Department of Applied Economics and Management.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carlton, Dennis W., 1989. "The theory and the facts of how markets clear: Is industrial organization valuable for understanding macroeconomics?," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 15, pages 909-946, Elsevier.
    2. Carmen García & Joan Ramon Borrell & José Manuel Ordóñez-de-Haro & Juan Luis Jiménez, 2022. "Managers’ expectations, business cycles and cartels’ life cycle," European Journal of Law and Economics, Springer, vol. 53(3), pages 451-484, June.
    3. Connor, John M., 2003. "Private International Cartels: Effectiveness, Welfare, And Anticartel Enforcement," Staff Papers 28645, Purdue University, Department of Agricultural Economics.
    4. Andrea Vaona, 2016. "A nonparametric panel data approach to the cyclical dynamics of price-cost margins in the fourth Kondratieff wave," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 155-170, August.
    5. Jan Askildsen & Øivind Nilsen, 2010. "Markup cyclicality and input factor adjustments," Empirical Economics, Springer, vol. 38(2), pages 409-428, April.
    6. Kyle Bagwell & Robert Staiger, 1997. "Collusion Over the Business Cycle," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 82-106, Spring.
    7. Dou, Winston Wei & Ji, Yan & Wu, Wei, 2021. "Competition, profitability, and discount rates," Journal of Financial Economics, Elsevier, vol. 140(2), pages 582-620.
    8. Raymond Board & Peter A. Tinsley, 1996. "Smart systems and simple agents: industry pricing by parallel rules," Finance and Economics Discussion Series 1996-50, Board of Governors of the Federal Reserve System (U.S.).
    9. Dan Bernhardt & Mahdi Rastad, 2016. "Collusion Under Risk Aversion and Fixed Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 64(4), pages 808-834, December.
    10. Konopczak, Karolina, 2019. "Modelling cyclical variation in the cost pass-through: evidence from regime-dependent ARDL model," MF Working Papers 36, Ministry of Finance in Poland.
    11. Margaret C. Levenstein & Valerie Y. Suslow, 2002. "What Determines Cartel Success?," UMASS Amherst Economics Working Papers 2002-01, University of Massachusetts Amherst, Department of Economics.
    12. Alejandro Castañeda Sabido & David Mulato, 2006. "Market Structure: Concentration and Imports as Determinants of Industry Margins," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 21(2), pages 177-202.
    13. Leola B. Ross, "undated". "When Will an Airline Stand Its Ground? An Analysis of Fare Wars," Working Papers 9703, East Carolina University, Department of Economics.
    14. Robert Gagné & Simon van Norden & Bruno Versaevel, 2003. "Testing Optimal Punishment Mechanisms Under Price Regulation: the Case of the Retail Market for Gasoline," CIRANO Working Papers 2003s-57, CIRANO.
    15. Jean J. Gabszewicz & Jacques-François Thisse, 2000. "Microeconomic theories of imperfect competition," Cahiers d'Économie Politique, Programme National Persée, vol. 37(1), pages 47-99.
    16. Fabra, Natalia & Toro, Juan, 2005. "Price wars and collusion in the Spanish electricity market," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 155-181, April.
    17. Johannes Paha, 2010. "Simulation and Prosecution of a Cartel with Endogenous Cartel Formation," MAGKS Papers on Economics 201007, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    18. David Genesove & Wallace P. Mullin, 1995. "Validating the Conjectural Variation Method: The Sugar Industry, 1890-1914," Working papers 95-20, Massachusetts Institute of Technology (MIT), Department of Economics.
    19. Daniel Ryan, 2000. "Fluctuations in productivity growth rates and input utilization in U.S. manufacturing," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(2), pages 150-163, June.
    20. Pedro Dal Bó, 2007. "Tacit collusion under interest rate fluctuations," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 533-540, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2057. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.