Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Monday, March 30, 2009

Market Sharing and Price Leadership

Posted by D. Daniel Sokol

Ante Farm (Swedish Institute for Social Research, Stockholm University) addresses Market Sharing and Price Leadership in a new working paper.

ABSTRACT: This paper proposes an alternative to the traditional model of supply and demand in markets where consumers take prices as given. Within the framework of “no side payments and partial preplay communication” firms are assumed to decide non-cooperatively on production and marketing while the market price is set by a competitive price leader, i.e. a firm preferring the lowest market price. Predictions include excess supply and a revenuemaximizing market price in markets where production precedes sales. In markets where sales precede production competitive price leadership predicts monopoly pricing but not necessarily monopoly profits if firms are “sufficiently similar”, while the presence of firms with high costs or low capacities will make it possible for the price leader, in some circumstances, to increase its market share and also its profits by reducing its price. And the threat of costly competition for market shares may reduce the market price even for identical firms.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/03/market-sharing-and-price-leadership.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef01156f55fc16970b

Listed below are links to weblogs that reference Market Sharing and Price Leadership:

Comments

Post a comment