A Supergame-Theoretic Model of Price Wars during Booms

This paper explorers the response of oligopolies to fluctuations in the demand for their products. In particular, we argue on theoretical grounds that implicitly colluding oligopolies are likely to behave more competitively in periods of high demand. We then show that in practice, during those periods, various oligopolistic industries tend to have relatively low prices. The few price wars which have been documented also seem to have taken place during periods of high demand. Finally, we study the possibility that this oligopolistic behavior has macroeconomic consequences.