Collusion through price ceilings? In search of a focal-point effect

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F11%3A00373121" target="_blank" >RIV/67985998:_____/11:00373121 - isvavai.cz</a>
Result on the web
<a href="http://dx.doi.org/10.1016/j.jebo.2011.02.008" target="_blank" >http://dx.doi.org/10.1016/j.jebo.2011.02.008</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1016/j.jebo.2011.02.008" target="_blank" >10.1016/j.jebo.2011.02.008</a>

Result language
angličtina
Original language name
Collusion through price ceilings? In search of a focal-point effect
Original language description
The theory of competitive markets predicts that the effect of a price ceiling on the level of prices is either negative (in case the ceiling is binding) or zero (in case the ceiling is at or above the competitive price). Industrial economists such as Scherer and Ross (1990), however, have argued that price ceilings can weaken competition as they may serve as collusive focal points for pricing decisions (Schelling, 1960). To see this, note that the Folk Theorem (see for example Tirole, 1988) predicts that infinitely many prices can occur as outcomes of collusive equilibria in infinitely repeated games if the discount factor is sufficiently high. This suggests a coordination problem when firms attempt to collude. Here, a price ceiling may function as a focal point on which firms coordinate. Thus, price ceilings could facilitate tacit collusion and lead to higher prices.
Czech name
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Czech description
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Type
J<sub>x</sub> - Unclassified - Peer-reviewed scientific article (Jimp, Jsc and Jost)
CEP classification
AH - Economics
OECD FORD branch
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Publication year
2011
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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