Industry Structure and Pricing over the Business Cycle

Yossi Spiegel and Konrad O. Stahl

No 4848, CESifo Working Paper Series from CESifo

Abstract: We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is a first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is a first mover. Moreover, our results show that entry deterrence by the incumbent firm can either amplify or dampen the effect of demand fluctuations on prices, price-cost margins, and capacity utilization.

Keywords: price competition; business cycle; entry; entry deterrence (search for similar items in EconPapers)
JEL-codes: D43 L41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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