The Noisy Duopolist

23 Pages Posted: 1 Mar 2001

See all articles by David M. Spector

David M. Spector

French National Center for Scientific Research (CNRS) - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)

Date Written: December 2000

Abstract

This paper provides an explanation for noisy pricing based on the strategic interaction of two firms competing in prices. When a firm adds noise to its prices, undercutting it becomes harder. Therefore, noisy pricing allows a firm to either exclude a competitor while charging supracompetitive prices, or to soften competition and have both firms earn supracompetitive profits. Such behavior leads to prices lying between the competitive and monopolistic levels, and harms consumers and social welfare. It occurs in equilibrium if firms set prices sequentially, and in some equilibria of a repeated game of simultaneous price-setting if one firm is patient.

Keywords: oligopoly theory, price theory

JEL Classification: D43, L13, L41

Suggested Citation

Spector, David M., The Noisy Duopolist (December 2000). MIT Dept. of Economics Working Paper No. 01-09. Available at SSRN: https://ssrn.com/abstract=262008 or http://dx.doi.org/10.2139/ssrn.262008

David M. Spector (Contact Author)

French National Center for Scientific Research (CNRS) - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)

Ecole Normale Superieure
48 boulevard Jourdan
75014 Paris
France

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