Cartel pricing dynamics with reference-dependent preferences

Anton-Giulio Manganelli

Economics Letters, 2017, vol. 150, issue C, 91-94

Abstract: This paper characterizes cartel pricing dynamics when consumers have reference-dependent preferences. Firms have a common discount factor unknown to consumers and a common cost i.i.d. over time. Consumers observe prices over time and update their expectations about firms’ ability to collude, which affects consumers’ price expectations. Reference-dependent preferences make consumers lose utility when the actual price is higher than the expected one, which forces colluding firms to raise prices alongside consumers’ price expectations. This increasing price path is capped by the price arising when consumers are sure that firms collude.

Keywords: Cartel pricing dynamics; Reference-dependent preference; Discount factor uncertainty (search for similar items in EconPapers)
JEL-codes: L13 L41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176516304682
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:150:y:2017:i:c:p:91-94

DOI: 10.1016/j.econlet.2016.11.016

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().