Oligopoly Supergames: Some Empirical Evidence on Prices and Margins

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This paper is a panel data study on the behavior of prices and margins of oligopolies involved in repeated games. We examine the predictions of Green and Porter [1984] and Rotemberg and Saloner [1986], two supergame models which generate very different predictions about the cyclical behavior of prices and margins. Our evidence on the levels of price-cost margins indicates that oligopolies achieve equilibria that more closely resemble a one-shot Cournot-Nash outcome than monopoly. We find, however, that industries with "high" price-cost margins exhibit cyclical price behavior which is quite different from that of unconcentrated industries. We find little evidence of price wars during either recessions or booms.