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  5. Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers

Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers

  • Andrew Sweeting
  • Xuezhen Tao
  • Xinlu Yao
American Economic Journal: Microeconomics (Forthcoming)

Abstract

We model repeated pricing by differentiated product firms when each firm has private information about its serially-correlated marginal cost. In a fully separating equilibrium of the dynamic game, signaling incentives can lead equilibrium prices to be significantly above those in a static, complete information game, even when the possible variation in the privately-observed state variables is very limited. We calibrate our model using data from the beer industry, and show that, without any change in conduct, our model can explain increases in price levels and changes in price dynamics and cost pass-through after the 2008 MillerCoors joint venture.

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