A Supergame-Theoretic Model of Business Cycles and Price Wars During Booms / Julio J. Rotemberg, Garth Saloner.

Format:

Book

Author/Creator:

Rotemberg, Julio J.

Contributor:

National Bureau of Economic Research.

Saloner, Garth.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1412.

NBER working paper series no. w1412

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1984.

Summary:

This paper studies implicitly colluding oligopolists facing fluctuating demand. The credible threat of future punishments provides the discipline that facilitates collusion. However, we find that the temptation to unilaterally deflate from the collusive outcome is often greater when demand is high. To moderate this temptation,the optimizing oligopoly reduces its profitability at such times,resulting in lower prices. If the oligopolists' output is an input to other sectors, their output may increase too. This explains the co-movements of outputs which characterize business cycles. The behavior of the railroads in the 1880's, the automobile industry in the 1950's and the cyclical behavior of cement prices and price-cost margins support our theory. (J.E.L. Classification numbers:020, 130, 610).

Notes:

Print version record

August 1984.