Dynamic Price Competition with Price Adjustment Costs and Product Differentiation

Gianluigi Vernasca

No 269565, Economic Research Papers from University of Warwick - Department of Economics

Abstract: We study a discrete time dynamic game of price competition with spatially di¤erentiated products and price adjustment costs. We characterise the Markov perfect and the open-loop equilibrium of our game. We …nd that in the steady state Markov perfect equilibrium, given the presence of adjustment costs, equilibrium prices are always higher than prices at the repeated static Nash solution, even though, adjustment costs are not paid in steady state. This is due to intertemporal strategic complementarity in the strategies of the …rms and from the fact that the cost of adjusting prices adds credibility to high price equilibrium strategies. On the other hand, the stationary open-loop equilibrium coincides always with the static solution. Furthermore, in contrast to continuous time games, we show that the stationary Markov perfect equilibrium converges to the static Nash equilibrium when adjustment costs tend to zero. Moreover, we obtain the same convergence result when adjustment costs tend to in…nity.

Keywords: Agricultural and Food Policy; Demand and Price Analysis (search for similar items in EconPapers)
Pages: 24
Date: 2003-07-07
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/269565/files/twerp681.pdf (application/pdf)
https://ageconsearch.umn.edu/record/269565/files/twerp681.pdf?subformat=pdfa (application/pdf)

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:ags:uwarer:269565

DOI: 10.22004/ag.econ.269565

Access Statistics for this paper

More papers in Economic Research Papers from University of Warwick - Department of Economics
Bibliographic data for series maintained by AgEcon Search ().