Edgeworth Cycles and Focal Prices: Computational Dynamic Markov Equilibria

Michael D. Noel

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: Motivated by the discovery of apparent Edgeworth Cycles in many retail gasoline markets, this paper extends the Maskin & Tirole [1988] theory Edgeworth Cycles to a wide range of more complicated and realistic settings. Taking a computational approach to search for Markov Perfect Equilibria, I examine models involving duopoly and triopoly, differentiation, capacity constraints, and different sharing rules, discount factors and initial beliefs about price leading behavior. I find Edgeworth Cycles equilibrium in many scenarios outside the homogenous-good Bertrand mold. Cycle characteristics and average markups depend on the scenario.

Keywords: D43; L11; L13 (search for similar items in EconPapers)
Date: 2004-09-01
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Citations: View citations in EconPapers (2)

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