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Asymmetric Pricing Caused by Collusion

Obradovits, Martin (2014): Asymmetric Pricing Caused by Collusion.

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Abstract

In many markets, empirical evidence suggests that positive production cost shocks are transmitted more quickly and fully to final prices than negative ones. This article explains asymmetric price adjustment caused by firms imperfectly colluding on supra-competitive price levels. While positive cost shocks are transmitted instantaneously, negative price adjustments only occur once aggregate market demand turns out unexpectedly low. In equilibrium, this can be supported whenever demand is sufficiently stable, and negative cost shocks are not too large.

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