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Pricing and price competition in consumer markets

Ante Farm ()
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Ante Farm: Stockholm University

Journal of Economics, 2017, vol. 120, issue 2, 119-133

Abstract: Abstract This paper offers a simple model of the price mechanism in markets where buyers take prices as given and prices are set by sellers, as in most consumer markets. It explains price competition by arguing that a market price goes down if—and only if—a price cut appears profitable to a firm even if its competitors follow suit. It also explains why markets do not always clear, that is, why production can be restricted by sales and not capacity at prices set by firms.

Keywords: Oligopoly; Pricing; Price competition; Price leadership (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2017
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