Correlated Demand Shocks and Price Wars During Booms
- 1 January 1991
- journal article
- Published by Oxford University Press (OUP) in The Review of Economic Studies
- Vol. 58 (1) , 171-180
- https://doi.org/10.2307/2298053
Abstract
The supergame-theoretic model of price competition (Rotemberg and Saloner (1986)) is re-examined in the case of serially correlated demand shocks. The equilibrium price is shown to exhibit the same counter-cyclical movement as in the i.i.d. case, if the discount factor and the number of firms satisfy certain relationship.Keywords
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