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http://hdl.handle.net/10419/47597
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| Title: | | The strategic effect of debt in dynamic price competition with fluctuating demand  |
| Authors: | | Neubecker, Leslie |
| Issue Date: | | 2002 |
| Series/Report no.: | | Tübinger Diskussionsbeiträge 250 |
| Abstract: | | This paper shows that obligations from debt hinder tacit collusion if equity owners are protected by limited liability. In contrast to its advantageous commitment value in short-run competition, leverage reduces profits from infinite interaction. Contrasting uncorrelated shocks with a cyclical demand development, we show that in the first case optimal pricing is anticyclical. With demand cycles, it is anticyclical only if equity holders place a low value on future profits, but procyclical otherwise. In both cases, the cyclicity of prices increases with the debt level. Contrary to traditional wisdom, a lower degree of homogeneity may raise profits of leveraged firms. |
| Subjects: | | capital structure dynamic competition collusion Preiswettbewerb Kapitalstruktur Kollusion |
| JEL: | | L41 L13 G32 E32 C73 |
| Persistent Identifier of the first edition: | | urn:nbn:de:bsz:21-opus-18834 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Tübinger Diskussionsbeiträge, Universität Tübingen
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