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Price Competition in an Inflationary Environment

Duersch, Peter ; Eife, Thomas

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We study how inflation and deflation affect firms' ability to cooperate in an experimental Bertrand duopoly with differentiated products. We find that there is significantly less cooperation in the treatments with inflation and deflation compared to the no-inflation treatments. The difficulties to cooperate affect prices and welfare: Depending on the market structure, inflation and deflation lead to significantly lower (real) prices and higher welfare.

Item Type: Working paper
Series Name: Discussion Paper Series / University of Heidelberg, Department of Economics
Volume: 0547
Date Deposited: 13 Aug 2013 08:26
Date: July 2013
Number of Pages: 28
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: Bertrand Duopoly, Inflation, Experiment, Money Illusion
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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