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Alexandrov, Alexei
Bedre-Defolie, Özlem
Year of Publication: 
Series/Report no.: 
ESMT Working Paper No. 15-03 (R1)
The LeChatelier-Samuelson principle states that as a reaction to a shock, an agent's short-run adjustment of an action is smaller than the long-run adjustment of that action when the other related actions can also be adjusted. We extend the principle to strategic environments and define long run as an adjustment that also includes other players adjusting their strategies. We show that the principle holds for both idiosyncratic shocks (affecting only one player's action directly) and common shocks in supermodular games, only for idiosyncratic shocks in submodular games if the players' payoffs depend only on their own strategies and the sum of the rivals' strategies (for example, homogeneous Cournot oligopoly), and only for idiosyncratic shocks in other games of strategic substitutes or heterogeneity satisfying Morishima Conditions. We argue that the principle might also explain the empirical findings of overshifting of cost and unit tax by multiproduct firms.
LeChatelier-Samuelson principle
cost passthrough
multiproduct firms
Document Type: 
Working Paper

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