Long‐run price competition

Abstract

We generalize the standard repeated‐games model of dynamic oligopolistic competition to allow for consumers who are long‐lived and forward looking. Each period leaves some residual demand to future periods and pricing in one period affects consumers' expectations about future prices. We analyze this setting for an indivisible durable good with price‐setting firms and overlapping cohorts of consumers. The model nests the repeated‐game model and the Coasian durable‐goods model as its two extreme cases. The analysis is mostly focused on constant‐price collusion but conditions for collusive recurrent sales are also identified.