On Prices’ Cyclical Behaviour in Oligopolistic Markets

We revisit the discussion about the relationship between price’s cyclical features, implicit collusion and the demand level in an oligopoly supergame where a positive shock may hit demand and disrupt collusion. The novel feature of our model consists in characterising the post-shock noncooperative price and comparing it against the cartel price played in the last period of the collusive path, to single out the conditions for procyclicality to arise both in the short and in the long-run. JEL Codes: C73, E60, L13 Keywords: demand shocks, cyclical pricing, implicit collusion We would like to thank Giacomo Calzolari, Vittoria Cerasi, Matthew Wake…eld, Gabriella Chiesa, Antonio Minniti and the audience at the Italian Economic Society Conference (Trento, 2014) and ASSET 2014 (Aix en Provence) for precious comments and suggestions on a previous draft that circulated under the title “Cartel Stability, Mark-up Cyclicality and Product Di¤erentiation”. Special thanks to Federico Etro. The usual disclaimer applies.