Template-type: ReDif-Paper 1.0
Author-Name: Leufkens Kasper 
Author-Name: Peeters Ronald 
Author-workplace-name: METEOR
Title: Alternating-move Hotelling with Demand Shocks
Abstract: In this paper an infinite-horizon alternating-move Hotelling model in which consumers are uniformly distributed over the market is considered. In a Markov perfect equilibrium, a seller’s move in any period depends on the price the other seller is committed to. The analytic solution is given and the unique linear Markov perfect equilibrium is computed for different values of the discount factor. The base model is then extended by the introduction of exogenous demand shocks which makes finding an analytical solution using the conventional analysis impossible. For this extended model the margin in which long-run prices fluctuate is determined for different values of the shock probability. It is found that the prices set in the high demand state are always lower than in the low demand state. Thus, our findings would support a notion of counter cyclical pricing with respect to the state of demand.
Keywords: Industrial Organization; 
Series: Research Memoranda
Creation-Date: 2006
Number: 039
File-URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:7060cc78-aa61-4b5b-acbd-6f1465805090/datastreams/ASSET1/content
File-Format: application/pdf
File-Size: 246521
Handle: RePEc:unm:umamet:2006039