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When is upstream collusion profitable?

Author

Listed:
  • Dingwei Gu
  • Zhiyong Yao
  • Wen Zhou
  • Rangrang Bai

Abstract

Motivated by the recent antitrust cases in which Japanese auto parts suppliers colluded to raise supply prices against their long‐term collaborators, the Japanese carmakers, we study the conditions under which an upstream collusion is profitable even after compensating downstream direct purchasers. Oligopoly competition in successive industries is shown to give rise to a vertical externality and a horizontal externality. If a collusive price of intermediate goods better balances the two externalities, the collusion will raise the joint profit of all firms in the two industries and is therefore profitable for the upstream after compensation of downstream firms.

Suggested Citation

  • Dingwei Gu & Zhiyong Yao & Wen Zhou & Rangrang Bai, 2019. "When is upstream collusion profitable?," RAND Journal of Economics, RAND Corporation, vol. 50(2), pages 326-341, June.
    • Handle: RePEc:bla:randje:v:50:y:2019:i:2:p:326-341
    DOI: 10.1111/1756-2171.12271
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    Cited by:

    1. Holler, Emanuel & Rickert, Dennis, 2022. "How resale price maintenance and loss leading affect upstream cartel stability: Anatomy of a coffee cartel," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    2. Dingwei Gu & Zhiyong Yao & Wen Zhou, 2022. "Proportional Fee vs. Unit Fee: Competition, Welfare, and Incentives," Journal of Industrial Economics, Wiley Blackwell, vol. 70(4), pages 999-1032, December.
    3. Subrata Saha & Zbigniew Banaszak & Grzegorz Bocewicz & Izabela Ewa Nielsen, 2022. "Pricing and quality competition for substitutable green products with a common retailer," Operational Research, Springer, vol. 22(4), pages 3713-3746, September.
    4. Leonard F. S. Wang & Han Wang, 2021. "Will managerial delegation impede upstream collusion?," Journal of Economics, Springer, vol. 134(2), pages 127-146, October.

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