Edgeworth price cycles

Michael Noel

from Palgrave Macmillan

Abstract: Edgeworth price cycles refer to an asymmetric pattern of prices that result from a dynamic pricing equilibrium among competing oligopolists. The resulting time series takes on a sawtooth shape – many small price decreases interrupted only by occasional large price increases. Maskin and Tirole (1988) formalized the theory, and later extensions were provided by Eckert (2003) and Noel (2008). Edgeworth price cycles are the leading theory for explaining the asymmetric price cycles that appear in many US, Canadian, Australian and European retail gasoline markets (e.g. Noel (2007a), Eckert (2002), Doyle et al. (2010), Wang (2009b)). While the gasoline cycles continue to generate public concern with claims of collusion often raised, the current evidence favours Edgeworth price cycles being the result of stronger competition and the source of lower retail gasoline prices.

Keywords: Markov strategies; Markov perfect equilibria; Cournot model; retail petrol markets (search for similar items in EconPapers)
JEL-codes: L13 L81 L92 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (56)

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