Price reaction functions and conjectural variations

Price conjectural variations are estimated to measure the degree of price competition in a product differentiated oligopoly. The empirical model is a simultaneous equation system of product demand and price reaction functions. Own and cross price demand elasticities are estimated in conjunction with the price conjectural variations and price reaction function elasticities. The conjectural variations are estimated for pairs of ready-to-eat breakfast cereal products using brand price and quantity data. The empirical results reject competitive brand pricing behavior in favor of independent or collusive pricing. Further, the hypothesis of a unique consistent conjecture is rejected.