Market power and price movements over the business cycle

Bart J. Wilson, Stanley S. Reynolds

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

This paper develops and tests implications of an oligopoly-pricing model. The model predicts that during a demand expansion, the short run competitive price is a pure strategy Nash equilibrium but in a recession, firms set prices above the competitive price. Thus, price markups over the competitive price are countercyclical. Prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions. The empirical analysis utilizes Hamilton's time series switching regime filter to test the predictions of the model. Fourteen out of fifteen industries have fluctuations consistent with this oligopoly-pricing model.

Original languageEnglish (US)
Pages (from-to)145-174
Number of pages30
JournalJournal of Industrial Economics
Volume53
Issue number2
DOIs
StatePublished - Jun 1 2005

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Market power and price movements over the business cycle'. Together they form a unique fingerprint.

  • Cite this