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Technology and Cartel Stability under Vertical Differentiation

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  • Luca Lambertini

Abstract

The interplay between R&D activity and cartel stability is investigated in a vertical differentiation framework with convex costs. The behaviour of firms' critical discount factors as the curvature of the cost function varies is investigated, considering either price- or quantity-setting behaviour. In order to stabilize collusion, firms are better off playing à la Cournot and supplying the non-cooperative qualities. There emerges a tradeoff between the reduction of the convexity of the cost function and the associated increase in marginal cost. The decision to carry out joint or independent ventures in research is also investigated, showing that such a decision is non-monotone in intertemporal discounting. Policy measures are then briefly discussed. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2000.

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Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 1 (2000)
Issue (Month): 4 (November)
Pages: 421-442

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Handle: RePEc:bla:germec:v:1:y:2000:i:4:p:421-442

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  7. Giulio Ecchia & Luca Lambertini, 1995. "Minimum Quality Standards and Collusion," Working Papers 235, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. LAMBERTINI, Luca & PODDAR, Sougata & SASAKI, Dan, . "Standardization and the stability of collusion," CORE Discussion Papers RP -1325, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  12. Luca Lambertini & Sougata Poddar & Dan Sasaki, 1997. "RJVs and Price Collusion under Endogenous Product Differentiation," Discussion Papers 97-09, University of Copenhagen. Department of Economics.
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  18. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
  19. Tom Ross, 1990. "Cartel Stability And Product Differentiation," Carleton Industrial Organization Research Unit (CIORU) 90-04, Carleton University, Department of Economics.
  20. Hackner, Jonas, 1995. "Endogenous product design in an infinitely repeated game," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 277-299.
  21. Majerus, David W., 1988. "Price vs. quantity competition in oligopoly supergames," Economics Letters, Elsevier, vol. 27(3), pages 293-297.
  22. Rosenkranz, Stephanie, 1995. "Innovation and cooperation under vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 1-22, March.
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  25. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
  26. Luca Lambertini & Dan Sasaki, 1999. "Optimal punishments in linear duopoly supergames with product differentiation," Journal of Economics, Springer, vol. 69(2), pages 173-188, June.
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