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On Collusion and Industry Size

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Author Info

  • Marc Escrihuela-Villar

    (Universitat de les Illes Balears)

  • Jorge Guillen

    (ESAN)

Abstract

In this paper we investigate the connection between the number of competitors and the sustainability of collusion within the context of a infinitely repeated symmetric Cournot model where only a subset of firms cooperate. We show that, in our model, an increase in the number of cartel firms may increase collusion likelihood by diminishing the negative effects for collusion of the existence of a competitive fringe. Also, we show that an increase in the number of fringe firrms makes collusion harder to sustain.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 12 (2011)
Issue (Month): 1 (May)
Pages: 31-40

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Handle: RePEc:cuf:journl:y:2011:v:12:i:1:p:31-40

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Related research

Keywords: Collusion; Sustainability; Fringe;

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References

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  1. Brock, William A & Scheinkman, Jose A, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 371-82, July.
  2. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  3. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  4. Sherrill Shaffer, 1993. "Stable cartels with a Cournot fringe," Working Papers 93-8, Federal Reserve Bank of Philadelphia.
  5. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
  6. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
  7. Bentley MacLeod, 1986. "Entry, Sunk Costs and Market Structure," Working Papers 649, Queen's University, Department of Economics.
  8. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  9. Marc Escrihuela-Villar, 2009. "A note on cartel stability and endogenous sequencing with tacit collusion," Journal of Economics, Springer, vol. 96(2), pages 137-147, March.
  10. Harrington, Joseph Jr., 1991. "The joint profit maximum as a free-entry equilibrium outcome," European Economic Review, Elsevier, vol. 35(5), pages 1087-1101, July.
  11. Osborne, Dale K, 1976. "Cartel Problems," American Economic Review, American Economic Association, vol. 66(5), pages 835-44, December.
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