Edgeworth Cycles with Partial Price Commitment

Abstract

The price commitment model of Maskin and Tirole (1988) provides an extensively cited foundation for Edgeworth cycles. We examine the viability of Edgeworth cycles when price commitment is partial in the sense that a subset of firms are committed to price in each period. If multiple firms are not committed in each period, then the existence of Edgeworth cycle equilibria requires a demanding concavity condition on the profit function. We use this result to motivate a simple timing test for the theory. We apply this test to the market for retail gasoline in Perth in which the timing of price changes is precisely observed. The test suggests that the timing of play is not well matched to the model of price commitment.