We present a theory of collusive pricing for markets in which demand alternates stochastically between fast-growth (boom) and slow-growth (recession) phases. We show that (1) the most-collusive prices are weakly procyclical (countercyclical) when demand growth rates are positively (negatively)...

When avoidable fixed costs are introduced into the entry model of Dixit (1980) and Ware (1984), there arises a coordination problem in selecting among postentry Nash equilibria. Elimination of weakly dominated strategies allows the entrant to use a market-capturing strategy, consisting of a...

We expand Milgrom and Roberts' (1982) limit pricing model to allow for multiple incumbents. Each incumbent is informed as to the level of an industry cost parameter and selects a preentry price while a single entrant observes each incumbent's preentry price. We find that incumbents are unable to...

We develop a model of retail competition in which retailers select prices and investments in cost reduction. An equilibrium is constructed in which several identical firms enter and then engage in a phase of vigorous price competition. This phase is concluded with a "shakeout," as a low-price,...

We enrich Milgrom and Roberts' (1982) limit-pricing model to allow an incumbent to signal his costs with both price and advertisements. Our fundamental result is that a cost-reducing distortion occurs, in that the incumbent behaves as if there were complete information but his costs were lower...

We analyze collusion in an infinitely repeated Bertrand game, where prices are publicly observed and each firm receives a privately observed, i.i.d. cost shock in each period. Productive efficiency is possible only if high-cost firms relinquish market share. In the most profitable collusive...

We explore the response of collusive prices to changing demand conditions when firms operate under capacity constraints in the presence of demand uncertainty. We find support for the conventional view that periods of low demand lead, through the emergence of excess capacity, to a breakdown of...