A Supergame-Theoretic Model of Price Wars during Booms

TLDR

Theoretical analysis suggests that implicitly colluding oligopolies tend to act more competitively during high‑demand periods. The study investigates whether oligopolistic competitiveness during booms can have macroeconomic effects. The results indicate that high‑demand periods trigger low prices and price wars in oligopolies, and the heightened competitiveness can boost overall sector output.

Abstract

theoretical grounds that implicitly colluding oligopolies are likely to behave more competitively in periods of high demand. We then show that, in practice, during those periods, various oligopolistic industries tend to have relatively low prices. The few price wars which have been documented also seem to have taken place during periods of high demand. Finally, we study the possibility that this oligopolistic behavior has macroeconomic consequences. We show that it is possible that the increase in competitiveness that results from a shift in demand towards goods produced by oligopolies may be sufficient to raise the output of all sectors.