Sharing Price Announcements

Brown Bag Seminar

Vladimir Karamychev

Thursday 28 Oct 2021, 12:00 - 13:00
Kitchen/hall on floor E1
E Building
Campus Woudestein
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We present a simple model where before competing in prices, firms announce which prices they intend to choose.

Deviating from these announcements involves a cost. We show that sharing price intentions lead to prices above their competitive level in that all equilibria result in prices that are higher than in the absence of announcements. When the deviation cost of not sticking to the price announcement is high the unique equilibrium market outcome is asymmetric as with price leadership. When this cost is low, a symmetric equilibrium exists with even higher prices. Product differentiation is a key ingredient to these results.

(joint work with Maarten C.W. Janssen (University of Vienna, National Research University Higher School of Economics)

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