In the Cont-Bouchaud model [cond-mat/9712318] of stock markets, percolation clusters act as buying or selling investors and their statistics controls that of the price variations. Rather than fixing the concentration controlling each cluster connectivity artificially at or close to the critical value, we propose that clusters shatter and aggregate continuously as the concentration evolves rando...

This paper proposes a theory of price rigidity consistent with survey evidence that firms stabilize prices out of fairness to their consumers. The theory relies on two psychological assumptions. First, customers care about the fairness of prices: fixing the price of a good, consumers enjoy it more at a low markup than at a high markup. Second, customers underinfer marginal costs from prices: wh...

The dynamic behavior of a price-fixing cartel is explored when it is concerned about creating suspicions that a cartel has formed. The intertemporal structure of the price path is characterized and the effect of antitrust policy on the cartel’s steady-state price is explored. ∗I want to thank Bates, White and Ballantine for re-stimulating my interest in this topic. I’d also like to acknowledge ...