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The Oligopolistic Pricing Problem - A Suggested Price Freeze Remedy


Guy Sagi


Netanya Academic College; Hebrew University School of Law; Columbia University Law School

June 10, 2007


Abstract:     
In this paper I set forth an antitrust remedy for the oligopolistic pricing problem. Oligopoly pricing resembles a repeated prisoners' dilemma game. Each firm has an incentive to moderately lower its price and thus increase its sales at its competitors' expense. However, each firm knows that its rivals would promptly discover such deviation and follow suit shortly. I therefore propose the implementation of a price freeze scheme in oligopoly markets by which an oligopolist that significantly lowers its price would freeze its rivals' prices at their previously higher oligopoly level for a defined period of time. A firm that decides to deviate from the previous oligopoly price and thus activates the price freeze could earn a significant higher payoff than its competitors. The deviating firm will win large share of the market, if not all of it, at the expense of the other firms. This price freeze scheme, as I will demonstrate, would drive prices downward and create an incentive for oligopolists to set ax ante lower prices. Since in most cases the suggested price freeze will drive prices down, ex ante, without actual activations of the price freeze, the suggested scheme is expected to perform as an "invisible" remedy. Therefore, any potential problems and inefficiencies associated with an implementation of a price freeze should be considerably discounted.

Number of Pages in PDF File: 77

Keywords: Antitrust, Oligopoly, Oligopolistic Pricing, Price Regulation, Game Theory

JEL Classification: C7, C71, C72, C73, D4, D43, K21, L1, L13, L4, L41

working papers series


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Date posted: June 12, 2007  

Suggested Citation

Sagi, Guy, The Oligopolistic Pricing Problem - A Suggested Price Freeze Remedy (June 10, 2007). Available at SSRN: http://ssrn.com/abstract=992567 or http://dx.doi.org/10.2139/ssrn.992567

Contact Information

Guy Sagi (Contact Author)
Netanya Academic College ( email )
Israel
C (Phone)
Hebrew University School of Law ( email )
Mount Scopus
Jerusalem, IL 91905
Israel
Columbia University Law School ( email )
3022 Broadway
New York, NY 10027
United States
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