A Simple Spatial Model for Edgeworth Cycles
14 Pages Posted: 26 Feb 2010
Date Written: February 24, 2010
Maskin & Tirole (1998) formalise Edgeworth’s (1925) model of a dynamic equilibrium between two players where prices increase sharply and decrease slowly; the Edgeworth Cycle. Here, we present an application of the model, showing how Edgeworth Cycles might arise in a marketplace where spatial competition is important. We illustrate the approach using the example of retail gasoline markets where Edgeworth Cycles have been widely observed.
Keywords: Edgeworth Cycles, spatial markets
JEL Classification: C65, L13, L81
Suggested Citation: Suggested Citation