Industry structure and pricing over the business cycle

Konrad Stahl and Yossi Spiegel

No 10009, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 the first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is the 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: Business cycle; Entry; Entry deterrence; Price competition (search for similar items in EconPapers)
JEL-codes: D43 L41 (search for similar items in EconPapers)
Date: 2014-06
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
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Citations: View citations in EconPapers (9)

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