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Industrial Organisation 2022

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Question:

Please describe the non collusive barometric price model oligopoly

Author: Hjalmer Pedersen



Answer:

• A firm announces a price change and the market reacts • Leader serves as a barometer for the industry and is not necessarily the dominant one • There are two types of barometric price leadership: 1. Competitive type o Frequent changes in the identity of the leader o No immediate, uniform price response to price changes o Variations in market share 2. Monopolistic type o A small number of large firms o Large entry barriers o Limited product differentiation o Low price elasticity of demand, deterring price-cutting o Similar cost functions


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