Self-Enforcing Price Leadership

Gustavo Gudino
Additional contact information
Gustavo Gudino: Independent Researcher, State College, PA 16801, USA

Games, 2021, vol. 12, issue 3, 1-18

Abstract: A dynamic Bertrand-duopoly model where price leadership emerges in equilibrium is developed. In the price leadership equilibrium, a firm leads price changes and its competitor always matches in the next period. The firms produce a homogeneous product and are identical except for the information they possess about demand. The market size follows a two-state Markov process. Market size realizations are observed by one of the firms but not the other. Without explicit communication, price leadership allows firms to jointly approximate monopolistic profits in equilibrium as the market size becomes more persistent provided that firms are patient. In the presence of persistent market dynamics, the informed firm’s price serves as a signal of current and therefore future market conditions. In the proposed price leadership equilibrium, the informed firm could cut prices without being detected, but it does not do so because it would lead the uninformed to also lower their price in the following period.

Keywords: repeated games; price leadership; coordination; collusion; asymmetric information (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2073-4336/12/3/59/pdf (application/pdf)
https://www.mdpi.com/2073-4336/12/3/59/ (text/html)

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:gam:jgames:v:12:y:2021:i:3:p:59-:d:603893

Access Statistics for this article

Games is currently edited by Ms. Susie Huang

More articles in Games from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().