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Output‐Expanding Collusion In The Presence Of A Competitive Fringe

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  • JUAN‐PABLO MONTERO
  • JUAN IGNACIO GUZMAN

Abstract

Following the structure of many commodity markets, we consider a few large firms and a competitive fringe of many small suppliers choosing quantities in an infinite‐horizon setting subject to demand shocks. We show that a collusive agreement among the large firms may not only bring an output contraction but also an output expansion (relative to the non‐collusive output level). The latter occurs during booms and is due to the strategic substitutability of quantities. We also find that the time at which maximal collusion is most difficult to sustain can be either at booms or recessions. The international copper cartel of 1935–39 is used to illustrate some of our results.

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  • Juan‐Pablo Montero & Juan Ignacio Guzman, 2010. "Output‐Expanding Collusion In The Presence Of A Competitive Fringe," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 106-126, March.
    • Handle: RePEc:bla:jindec:v:58:y:2010:i:1:p:106-126
    DOI: 10.1111/j.1467-6451.2010.00410.x
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    Cited by:

    1. Tuinstra Jan & in ’t Veld Daan L., 2014. "Market-Induced Rationalization and Welfare-Enhancing Cartels," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(1), pages 189-202, January.
    2. João Correia-da-Silva & Joana Pinho & Hélder Vasconcelos, 2016. "Sustaining collusion in markets with entry driven by balanced growth," Journal of Economics, Springer, vol. 118(1), pages 1-34, May.
    3. Paulus, Moritz & Trueby, Johannes & Growitsch, Christian, 2011. "Nations as Strategic Players in Global Commodity Markets: Evidence from World Coal Trade," EWI Working Papers 2011-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    4. Juan Ignacio Guzmán, 2018. "The International Copper Cartel, 1935–1939: the good cartel?," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 31(1), pages 113-125, May.

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