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We're Number 1: Price Wars for Market Share Leadership

Authors: Cabral, Luis
Keywords: dynamic oligopoly, price wars, market shares;ordinal rankings, behavioral IO
Issue Date: 15-Jan-2014
Abstract: I examine the dynamics of oligopolies when fi rms derive subjective value from being the market leader. In equilibrium, prices alternate in tandem between high levels and occasional price wars, which take place when market shares are similar and market leadership is at stake. The stationary distribution of market shares is typically multimodal, that is, much of the time there is a stable market leader. Even though shareholders do not value market leadership per se, a corporate culture that values market leadership may increase shareholder value. From a competition policy point of view, the paper implies that price regime change dynamics and parallel pricing are consistent with competitive behavior -- in fact, hyper-competitive behavior.
Rights: Copyright Luis Cabral, January 2014.
Appears in Collections:Economics Working Papers

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