Economics at your fingertips  

Collusive Pricing with Capacity Constraints in the Presence of Demand Uncertainty

Robert Staiger () and Frank A. Wolak

RAND Journal of Economics, 1992, vol. 23, issue 2, 203-220

Abstract: We explore the response of collusive prices to changing demand conditions when firms operate under capacity constraints in the presence of demand uncertainty. We find support for the conventional view that periods of low demand lead, through the emergence of excess capacity, to a breakdown of collusive pricing. We also find that the nature of price wars depends on the degree of excess capacity in the industry; while small amounts of excess capacity can lead firms to engage in "mild" price wars, characterized by uniform price reductions and market share stability, more "severe" price wars, characterized by price undercutting and market share instability, can emerge if excess capacity is sufficiently great. Finally, our results lend support to the view that market share instability is a symptom of ineffective collusion.

Date: 1992
References: Add references at CitEc
Citations: View citations in EconPapers (65) Track citations by RSS feed

Downloads: (external link) ... O%3B2-7&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See for details.

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:

Ordering information: This journal article can be ordered from
https://editorialexp ... i-bin/rje_online.cgi

Access Statistics for this article

More articles in RAND Journal of Economics from The RAND Corporation
Bibliographic data for series maintained by ().

Page updated 2020-01-21
Handle: RePEc:rje:randje:v:23:y:1992:i:summer:p:203-220