Antitrust & Competition Policy Blog

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

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Tuesday, August 19, 2014

Industry structure and pricing over the business cycle

Yossi Spiegel, Tel Aviv University and Konrad Stahl, Mannheim discuss Industry structure and pricing over the business cycle.

ABSTRACT: We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is a first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is a first mover. Moreover, our results show that entry deterrence by the incumbent firm can either amplify or dampen the effect of demand fluctuations on prices, price-cost margins, and capacity utilization.

http://lawprofessors.typepad.com/antitrustprof_blog/2014/08/industry-structure-and-pricing-over-the-business-cycle-.html

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