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Journal Article

LeChatelier-Samuelson principle in games and pass-through of shocks

Journal of Economic Theory 168 (March): 44–54
Alexei Alexandrov, Özlem Bedre-Defolie (2017)
Subject(s)
Economics, politics and business environment
Keyword(s)
LeChatelier principle, cost passthrough, multiproduct oligopoly
JEL Code(s)
C72, D43, D11
The LeChatelier-Samuelson principle states that, as a reaction to a shock, an agent's short-run adjustment of an affected action is smaller than its long-run adjustment (when the agent can also adjust other related actions). We extend the principle to strategic environments where the long-run adjustment also accounts for other players adjusting their strategies. We show that the principle holds for supermodular games (strategic complements) satisfying monotone comparative statics and provide sufficient conditions for the principle to hold in games of strategic substitutes/heterogeneity. We discuss the principle's implications for cost pass-through of multiproduct firms.
Volume
168
Journal Pages
44–54