Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers

We model differentiated product pricing by firms that possess private information about serially-correlated state variables, such as their marginal costs, and can use prices to signal information to rivals. In a dynamic game, we show that signaling can raise prices significantly above static complet...

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Bibliographic Details
Published in:NBER Working Paper Series 2021-03
Main Authors: Sweeting, Andrew, Tao, Xuezhen, Yao, Xinlu
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Breweries
Costs
Economic theory
Equilibrium
Prices
Product lines
Profits
Variables
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Summary:We model differentiated product pricing by firms that possess private information about serially-correlated state variables, such as their marginal costs, and can use prices to signal information to rivals. In a dynamic game, we show that signaling can raise prices significantly above static complete information Nash levels, even when the privately observed state variables are restricted to lie in narrow ranges. We calibrate our model using data from the beer industry, and show that our model can explain changes in price levels, price dynamics and cost pass-through after the 2008 MillerCoors joint venture.
ISSN:0898-2937
DOI:10.3386/w28589