Asymmetric Collusion with Growing Demand

Journal of Industry, Competition and Trade - Tập 14 - Trang 429-472 - 2013
António Brandão1, Joana Pinho1, Hélder Vasconcelos1,2
1CEF.UP and Faculdade de Economia, Universidade do Porto, Porto, Portugal
2CEPR, London, UK

Tóm tắt

We characterize collusion sustainability in markets where demand growth triggers the entry of a new firm whose efficiency may be different from the efficiency of the incumbents. We find that the profit-sharing rule that firms adopt to divide the cartel profit after entry is a key determinant of the incentives for collusion (before and after entry). In particular, if the incumbents and the entrant are very asymmetric, collusion without side-payments cannot be sustained. However, if firms divide joint profits through bargaining and are sufficiently patient, collusion is sustainable even if firms are very asymmetric.

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