Sharing Price Announcements

We present a simple model where before competing in prices, firms

announce which prices they intend to choose. Deviating from these announcements

involves a cost. We show that sharing price intentions lead to prices above

their competitive level in that all equilibria result in prices that are higher

than in the absence of announcements. When the deviation cost of not sticking

to the price announcement is high the unique equilibrium market outcome is

asymmetric as with price leadership. When this cost is low, a symmetric

equilibrium exists with even higher prices. Product differentiation is a key ingredient

to these results.

Joint work with: Maarten C.W. Janssen (University of Vienna)