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Dynamic Price Adjustment Under Imperfect Competition

Author

Listed:
  • Curtis Eberwein

    (McGill University)

  • Ted To

    (University of Warwick)

Abstract
We study dynamic price adjustment under imperfect competition when consumers have non-time-separable preferences. In our model an intertemporal link arises in the consumers' maximization problems because current consumption decisions affect the utility of future consumption. Thus future demand depends on the current price and firms must take this into account when making their decisions. The main result is that equilibrium prices follow a dynamic stochastic process in which the current price depends on past prices and on random disturbances. The convergence of prices to the `long run expected price' is monotonic if current and future consumption are substitutes and oscillatory if they are complements.

Suggested Citation

  • Curtis Eberwein & Ted To, 1998. "Dynamic Price Adjustment Under Imperfect Competition," Industrial Organization 9803002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:9803002
    Note: Type of Document - Tex generated DVI file; prepared on IBM PC - mikTeX; to print on any; pages: 26 ; figures: none
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    dynamic pricing; oligopoly; overlapping generations;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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