Industry Structure and Pricing Over the Business Cycle

30 Pages Posted: 10 Jul 2014

See all articles by Yossi Spiegel

Yossi Spiegel

Tel Aviv University, Coller School of Management; Centre for Economic Policy Research (CEPR); ZEW – Leibniz Centre for European Economic Research

Konrad O. Stahl

University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: June 11, 2014

Abstract

We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is a first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is a first mover. Moreover, our results show that entry deterrence by the incumbent firm can either amplify or dampen the effect of demand fluctuations on prices, price-cost margins, and capacity utilization.

Keywords: price competition, business cycle, entry, entry deterrence

JEL Classification: D43, L41

Suggested Citation

Spiegel, Yossi and Stahl, Konrad O., Industry Structure and Pricing Over the Business Cycle (June 11, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-039. Available at SSRN: https://ssrn.com/abstract=2464471 or http://dx.doi.org/10.2139/ssrn.2464471

Yossi Spiegel (Contact Author)

Tel Aviv University, Coller School of Management ( email )

Ramat Aviv, Tel Aviv, 69978
Israel
972-3-640-9063 (Phone)
972-3-640-7739 (Fax)

HOME PAGE: http://www.tau.ac.il/~spiegel

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Konrad O. Stahl

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181 1875 (Phone)
+49 621 181 1874 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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