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Correlated Demand Shocks and Price Wars During Booms

Michihiro Kandori

The Review of Economic Studies, 1991, vol. 58, issue 1, 171-180

Abstract: The supergame-theoretic model of price competition (Rotemberg and Saloner (1986)) is re-examined in the case of serially correlated demand shocks. The equilibrium price is shown to exhibit the same counter-cyclical movement as in the i.i.d. case, if the discount factor and the number of firms satisfy certain relationship.

Date: 1991
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The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

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