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ABSTRACT:
Motivated by the discovery of apparent Edgeworth Cycles in many retail gasoline markets, this paper extends the Maskin & Tirole [1988] theory Edgeworth Cycles to a wide range of more complicated and realistic settings. Taking a computational approach to search for Markov Perfect Equilibria, I examine models involving duopoly and triopoly, differentiation, capacity constraints, and different sharing rules, discount factors and initial beliefs about price leading behavior. I find Edgeworth Cycles equilibrium in many scenarios outside the homogenous-good Bertrand mold. Cycle characteristics and average markups depend on the scenario.

SUGGESTED CITATION:
Michael D. Noel, "Edgeworth Cycles and Focal Prices: Computational Dynamic Markov Equilibria" (September 1, 2004). Department of Economics, UCSD. Paper 2004-13.
http://repositories.cdlib.org/ucsdecon/2004-13