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Profit-sharing in a collusive industry

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  • Osborne, Martin J.
  • Pitchik, Carolyn

Abstract

We study a model in which collusive duopolists divide up the monopoly profit according to their relative bargaining power. We are particularly interested in how the negotiated profit shares depend on the sizes of the firms. If each can produce at the same constant unit cost up to its capacity, we show that the profit per unit of capacity of the small firm is higher than that of the large one. We also study how the ratio of the negotiated profits depends on the size of demand relative to industry capacity, and how this ratio changes with variations in demand.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 22 (1983)
Issue (Month): 1 (June)
Pages: 59-74

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Handle: RePEc:eee:eecrev:v:22:y:1983:i:1:p:59-74

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References

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  1. Radner, Roy, 1980. "Collusive behavior in noncooperative epsilon-equilibria of oligopolies with long but finite lives," Journal of Economic Theory, Elsevier, vol. 22(2), pages 136-154, April.
  2. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  4. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
  5. Osborne, Dale K, 1976. "Cartel Problems," American Economic Review, American Economic Association, vol. 66(5), pages 835-44, December.
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Cited by:
  1. Macleod, W. Bentley, . "A theory of conscious parallelism," CORE Discussion Papers RP -629, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Aitor Ciarreta & Carlos Gutiérrez-Hita, 2012. "Collusive behaviour under cost asymmetries when firms compete in supply functions," Journal of Economics, Springer, vol. 106(3), pages 195-219, July.
  3. Ma, Tay-Cheng, 2008. "Disadvantageous collusion and government regulation," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 168-185, January.
  4. Schmalensee, Richard., 1985. "Competitive advantage and collusion," Working papers 1724-85., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Tay-Cheng Ma, 2005. "Strategic investment and excess capacity: A study of the Taiwanese flour industry," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 153-170, May.

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