Oligopoly Pricing Research Articles

The relative rigidity of oligopoly pricing

Evidence on Canadian daily newspaper prices shows that, unlike in Rotemberg and Saloner ( American Economic Review, 1987, 77, 917–926), monopolies change prices more frequently than oligopolies.

Estimating Markups and Market Conduct with Multidimensional Product Attributes

We demonstrate how to estimate a model of oligopoly pricing when products are multi-dimensionally differentiated. We provide an empirical counterpart to recent theoretical work on product differentiation. Using specifications informed by economic theory, we estimate price-cost margins for products differentiated in many dimensions.

Scanner Data: New Opportunities for Demand and Competitive Strategy Analysis

This paper reviews prior research by agricultural economists on the demand for food products using scanner data. Thereafter, a differentiated product's oligopoly model with Bertrand price competition is developed and used to specify brand level demand and oligopoly price reaction equations. The model has sufficient detail to estimate brand level price elasticities and price response elasticities which in turn can be used to estimate three indices of market power. The first index estimated is the familiar Rothschild Index. The paper develops estimates two new indexes, the observed index and the Chamberlin quotient for tacit collusion. It concludes with comments on how the proposed method for the measurement of market power in a differentiated oligopoly can be improved.

Nouvelles estimations des pertes de bien-être et de surplus du consommateur dans l'industrie agro-alimentaire américaine

Arnold Harberger, in a seminal 1954 paper, was the first to estimate empirically the deadweight social losses due to imperfect competition. By imposing five key assumptions (linear demand, unit price-elasticity, effective cartel pricing, constant marginal costs, and competitive profits = average profits), he concluded that US welfare losses were insignificant. In the past 15 years, advances in oligopoly theory have produced new algorithms that permit the calculation of economic losses and that relax some Harberger' s restrictive assumptions. Having accurate estimates of interindustry losses is important for the enforcement of competition laws. This paper examines the sensivity of economic losses due to market power across different oligopoly models with a variety of parametric values, data sources, and time periods. The alternative structural models include monopoly pricing, Cournot pricing with homogeneous or heterogeneous products, various forms of price leaderships, and general industry-wide oligopoly pricing. Own-price demand or supply elasticities may be fixed or may vary accross industries. All the estimates examined in this paper utilise US Census Bureau concentration indexes for the food manufacturing for various years between 1967 and 1987. Most estimates rely on Census price-cost margins , while others calculate price ratios from commercial micro-data sets. Finally, most estimates adopt perfect competition as the measurement criterion, whereas others prefer «workable» In view of these many differences in estimation methods, it is not surprising that average economic losses due to market power range widely. As expected from theory, the deadweight welfare losses are higher under monopoly pricing and under Cournot pricing ; average losses are greater when de¬ mand is convex to origin that when it is linear ; and consumer income transfers are about 40 times higher than the deadweight welfare losses. Somewhat surprising are the implausably high welfare losses when price leadership among the top four firms is assumed (equilibrium prices are frequently infinite), but we suspect the losses would be lower if the demand or supply elasticities were higher. We further analyzed the cross-industry correlations of the alternative loss estimates. We find that cardinal estimates vary substantially, but ordinal results very little. Thus, from the point of view of the enforcement of competition laws, the theoretical and empirical progress of the past 15 years has done little to alter the rank of the principal target industries. While the positive correlations among economic-loss estimates is comforting, much work remains to be done to improve estimation techniques and to decide rationally which behavorial models are correct.

The New industrial economics: recent developments in industrial organization, oligopoly and game theory

Game theory and industrial economics - an introduction, Francoise Forges and Jacques-Francois Thisse strategic behaviour and collusion, Margaret Slade and Alexis Jacquemin entry deterrence, Roger Ware product differentiation and quality, Norman Ireland price discrimination, George Norman towards a theory of horizontal mergers, Gerard Gaudet and Stephen Salant new dimensions of the patent system, Manfredi La Manna entrepreneurship - a model of risky innovation under capital constraints, Mark Casson oligopoly pricing - time-varying conduct and the influence of product durability as an element of market structure, Ian Domowitz.

Mixed pricing in oligopoly with consumer switching costs

In this paper we develop an alternative and more natural two-period model of duopolistic competition with switching costs. We find that overall competition is always less severe when consumers find switching suppliers expensive. However, the relationship between the strength of competition and the importance of switching costs is not monotonic. Interestingly, competition between ex ante identical firms naturally results in firms having asymmetric market shares in equilibrium.

Integration of Spatial Markets

AbstractStudies of spatial market integration draw their implications from a theory which assumes that there are no intraregional transport costs. An alternative theory is offered, based on the assumptions that buyers and sellers are spatially dispersed and intraregional transport costs are significant. This implies that the market is a linked oligopoly (or oligopsony) and that market integration tests are tests of alternative oligopoly price formation processes. For example, collusive basing‐point pricing produces results typically assumed to imply efficiently integrated markets, while competitive FOB pricing does not. The theoretical implications are illustrated with an analysis of hog prices in Canada.

Exchange rate adjustment and oligopoly pricing behaviour

This paper sets out a general theoretical structure for analyzing price adjustments to cost changes within asymmetric oligopolistic markets. The theory implies that, contrary to the usual assumption, exchange rate changes may leave prices unaltered. This is explored by an empirical examination of the European car market; intracountry changes in car prices and the huge differences in U.K. and European car prices are both examined. The empirical results are in line with the theoretical implications: changes in relative supply costs are more likely to be converted into changes in price-cost margins than prices within a national oligopolistic market. Copyright 1989 by Oxford University Press.

Losing to Win: U.S. Steel's Pricing, Investment Decisions, and Market Share, 1901–1938

U.S. Steel held two-thirds of the American market in 1901, but by the 1930s its share had dropped to one-third. Such a decline is consistent with the economic theory of oligopoly pricing and capacity expansion, but the available data offer limited opportunities for formal testing of hypotheses. A close examination of U.S. Steel's early history leads us to argue that Chairman Elbert Gary's desire for price stability, his fear of antitrust litigation, and shortcomings in the firm's organizational capability constrained it from the unbridled pursuit of discounted profits that the economic theory assumes.

Uncertainty, Spatial Proximity, and the Stability of Oligopoly Pricing

One of the most pervasive characteristics of mature oligopolistic industries is their reluctance to engage in price competition, and their channeling of competitive efforts into rivalry using advertising and other marketing costs as well as product differentiation. This leads to questions concerning the nature of the economic and social matrix within which such firms operate, and these questions in turn motivate the theorist to construct frameworks that yield such results. Spatial proximity has generally been accepted as an intensifier of price competition, but in many local oligopolistic markets it seems to act as an inhibitor of price competition. In this paper I attempt to study the role of uncertainty in explaining the ‘rivalrous consonance of interests’ which tends to keep prices above the competitive level in spatially concentrated markets. By using Weibull density functions to approximate subjective expectations of firms, I seek to cast light upon some of the factors that play a role in explaining this apparent paradox.

An empirical test of the effect of excess capacity in price setting, capacity-constrained supergames

In a multi-period game, industry excess capacity may act to deter firms from cheating on a non-cooperative oligopoly price. A model is developed that translates the deterrrent influence of excess capacity into predictions about the relationship between excess capacity and oligopoly price-cost margins. The model is tested with time-series data from the U.S. aluminum industry. Results are consistent with those predicted by the model.

Effects of Horizontal Merger on Price, Profits, and Market Power in a Dominant-Firm Oligopoly

Assuming that all firms have rising marginal costs, merger between a dominant firm and one of the firms in the competitive fringe is considered. The effects on market price and output, profits and market power are shown when the dominant firm operates as a two-plant firm after merger and output arises from both plants. It is proved that if merger offers no efficiency gain, then market price always rises; and if merger results in efficiency gain, then market price falls if and only if there are sufficiently large number of firms in the fringe. In any case, there is profit incentive for merger to take place. [611]

Proof of nonparticipation in a price fixing conspiracy

When a group of firms colludes on price, the industry price will rise even when there are some firms that do not participate in the conspiracy. If the government or private parties file antitrust suits, the noncolluders face the problem of establishing their innocence since their prices rise along with those of the colluders. We propose a simple output test. Under various models of oligopoly pricing—Bertrand, Cournot, and Stackelberg—we show that the colluders restrict their output while the noncolluders take advantage of the higher price by expanding their outputs. Thus, distinguishing between colluders and noncolluders involves simply observing the output behavior of the industry members.

Optimal oligopoly pricing and the threat of entry: Canadian evidence

In earlier work we tested stochastic/dynamic limit pricing using U.S. data. We replicate these tests using Canadian data. The results are weak, but consistent with the earlier tests. Along the way we deal with several methodological problems: How does the new ‘rational limit pricing’ relate to the test? How might oligopoly influences be integrated into limit pricing? How should existing concentration affect entrant behavior? Might factors which suppress industry profitability not, ceteris paribus, deter entry? What might one do with correlated proxy variables? Should ‘weak’ results be interpreted the same in a replication test, as in a de novo test?

Trade and Protection in the Asian Developing Region

Every period poses new challenges to the world economy. The last decade has been marked by a series of problems that have contributed to reduced growth rates or declines in global economic activity. These problems emerged from a sequence of related events, starting with oligopoly pricing of crude petroleum exports, followed by rapid world inflation, disinflation, and, most recently, high real interest rates and external debt repayment problems of an increasing number of developing countries. These economic developments have given rise to international concern about a new era of protectionism that could well have similar deleterious effects on the world economy as those that contributed to the Great Depression of the 1930s…

A probability model of oligopoly pricing

This paper discusses a method for analyzing the pricing and production behaviour of a mature oligopoly, characterized by stable market shares and well established patterns of price leadership. The oligopoly utilized as an example is the US primary producers of copper. The paper develops three pricing/production strategies which are felt to be most relevant to the US primary producers. While one of these strategies (collusive monopolistic pricing) is more desirable to the oligopoly, the ability of the oligopoly to impose any of the strategies depends upon market conditions and government stockpile intervention. A generalized logit probability model is developed and estimated to indicate the effects of market conditions and government action upon the ability of the oligopoly to impose its desired pricing/production strategies.

Pricing Behavior in the UK Wholesale Market for Petrol 1970-80: A "Structure-Conduct" Analysis

THE objective of this paper is to contribute to a better understanding of pricing in the markets for manufactured goods through a detailed examination of pricing behaviour in the UK wholesale market for petrol between 1970 and 1980. The UK petrol market is particularly suitable as a case study in pricing behaviour because of the availability of information and the changes in pricing behaviour observed over the period. During the 1970s changes in market structure and supply conditions combined to force a breakdown in the longestablished coordination of the major suppliers' wholesale prices, giving way to periods of intense price competition. Earlier studies of competition in the industry have concentrated upon the pricing practices of the major suppliers [171 and on changes in market structure [6]. This paper extends and develops the examination of pricing behaviour, first, by concentrating upon a period characterised by unprecedently traumatic changes in market conditions and pricing behaviour and, second, by incorporating more comprehensive information on pricing drawn from industry sources and from reports by the Monopolies and Mergers Commission [91, Department of Prices and Consumer Protection [31 and Price Commission [11], [121, [13], [14]. The approach followed is to examine petrol pricing behaviour as an application of a simple industrial organisation model of oligopoly pricing. In the light of a structure-conduct analysis of pricing (section I), the principal structural features of the UK petrol market likely to influence pricing behaviour are identified (section II). Predictions are made concerning the nature of pricing behaviour in the industry and the changes in pricing behaviour which might be induced by structural change, (section III) and these predictions are tested out by an examination of pricing behaviour over the period (section IV).

Why Oligopoly Prices Don't Stick

Sweezy's kinky demand curve and prediction of price rigidity under oligopoly has recently been supplemented by a similar prediction (on different grounds) by Drèze. This paper questions assumptions made by both authors and shows that alternative assumptions reverse the prediction.

IMPORTED INFLATION IN PAPUA NEW GUINEA, 1972–76

The Developing EconomiesVolume 17, Issue 3 p. 344-361 Free Access IMPORTED INFLATION IN PAPUA NEW GUINEA, 1972–76 Ngo Van LAM, Ngo Van LAMSearch for more papers by this author Ngo Van LAM, Ngo Van LAMSearch for more papers by this author First published: September 1979 https://doi.org/10.1111/j.1746-1049.1979.tb00619.xCitations: 2AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat REFERENCES 1 BARKER, T. S., and LECOMBER, J. R. C. The Import Content of Final Expenditures for the United Kingdom, 1954–72,” Bulletin of the Oxford University Institute of Economics and Statistics, Vol. 32, No. 1 (February 1970). 2 BAXTER, P.P. Input-Output Matrix for Papua New Guinea, 1972–73 ( Port Moresby : Institute of Applied Social and Economic Research, 1977). 3 DUNN, R. M. Jr. Flexible Exchange Rates and Oligopoly Pricing,” Journal of Political Economy, Vol. 78, No. 1 (February 1970). 4 ECKSTEIN, O., and FROMM, G. The Price Equation,” American Economic Review, Vol. 58, No. 5 (December 1968). 5 EPSTEIN, T. S. Buyers and Prices at Indigenous Produce Markets in TPNG,” Industrial Review, Vol. 7, No. 2 (July 1969). 6 EVANS, M. J. Macro-economic Activity ( New York : Harper and Row, 1969). 7 LANZILLOTTI, R. F. Pricing Objectives in Large Companies,” American Economic Review, Vol. 48, No. 5 (December 1958). 8 MCCULLOUGH, A. R. Koki Market in Port Moresby,” PNG Agricultural Journal, Vol. 22, No. 2 (August 1971). 9 MILLER, M. H. Can a Rise in Import Prices Be Inflationary and Deflationary American Economic Review, Vol. 66, No. 4, (September 1976). 10 Papua New Guinea. “ Submission to the Minimum Wages Board, 1977,” Mimeographed (1977). 11 Papua New Guinea, Central Planning Office. Programs and Performance, 1975–76 ( Port Moresby : Government Printer, 1975). 12 Papua New Guinea, Department of Labour. Income and Expenditure Survey of Local Public Servants—July 1970, 3 Vols. ( Port Moresby : Department of Labour, 1971). 13 Papua New Guinea, Minister for Finance. Budget Speech, 1976–77 ( Port Moresby : Government Printer, 1976). 14 PARKER, M. L. An Inter-Industry Approach to Planning in Papua New Guinea,” Economic Record, Vol. 50, No. 3 (September 1974). 15 TURNOVSKY, S. J., and KASPURA, A. An Analysis of Import Inflation in a Short Run Macro-economic Model,” Canadian Journal of Economics, Vol. 7, No. 3 (October 1974). Citing Literature Volume17, Issue3September 1979Pages 344-361 ReferencesRelatedInformation

Mixed pricing in oligopoly

Mixed pricing in oligopoly