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Collusive price leadership with capacity constraints

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  • Ishibashi, Ikuo

Abstract

In this paper, collusive price leadership in homogeneous good capacity-constrained repeated price competition is examined. In the stage game, firms choose their timing of price setting. Although setting a price early is disadvantageous per se, a large firm has an incentive to move early in order to demonstrate its commitment not to deviate. If the discount factor is not too large, this behavior raises the collusive price compared to that arising in collusion with simultaneous moves. As a result, all firms obtain (strictly) higher profits.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 3 (May)
Pages: 704-715

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Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:704-715

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Web page: http://www.elsevier.com/locate/inca/505551

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References

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  1. Rotemberg, Julio J & Saloner, Garth, 1990. "Collusive Price Leadership," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 93-111, September.
  2. Ono, Yoshiyasu, 1982. "Price Leadership: A Theoretical Analysis," Economica, London School of Economics and Political Science, vol. 49(193), pages 11-20, February.
  3. Lambson, Val Eugene, 1995. "Optimal penal codes in nearly symmetric Bertrand supergames with capacity constraints," Journal of Mathematical Economics, Elsevier, vol. 24(1), pages 1-22.
  4. Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers 88-4, Florida - College of Business Administration.
  5. George J. Stigler, 1947. "The Kinky Oligopoly Demand Curve and Rigid Prices," Journal of Political Economy, University of Chicago Press, vol. 55, pages 432.
  6. Dave Furth & Dan Kovenock, 1993. "Price leadership in a duopoly with capacity constraints and product differentiation," Journal of Economics, Springer, vol. 57(1), pages 1-35, February.
  7. Ono, Yoshiyasu, 1978. "The Equilibrium of Duopoly in a Market of Homogeneous Goods," Economica, London School of Economics and Political Science, vol. 45(179), pages 287-95, August.
  8. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  9. Robson, Arthur J, 1990. "Duopoly with Endogenous Strategic Timing: Stackelberg Regained," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 263-74, May.
  10. Lambson, Val Eugene, 1987. "Optimal Penal Codes in Price-Setting Supergames with Capacity Constraints," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 385-97, July.
  11. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  12. Lambson Val Eugene, 1994. "Some Results on Optimal Penal Codes in Asymmetric Bertrand Supergames," Journal of Economic Theory, Elsevier, vol. 62(2), pages 444-468, April.
  13. Deneckere, Raymond J & Kovenock, Dan, 1992. "Price Leadership," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 143-62, January.
    • Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Citations

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Cited by:
  1. Fei Shi, 2008. "Endogenous Timing with Demand Uncertainty," TWI Research Paper Series 30, Thurgauer Wirtschaftsinstitut, Universit├Ąt Konstanz.
  2. Makoto Yano & Takashi Komatsubara, 2012. "Price Competition or Tacit Collusion," KIER Working Papers 807, Kyoto University, Institute of Economic Research.
  3. Bos Iwan & Wandschneider Frederick, 2011. "Cartel Ringleaders and the Corporate Leniency Program," Research Memorandum 038, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Shakun Datta Mago & Emmanuel Dechenaux, 2009. "Price leadership and firm size asymmetry: an experimental analysis," Experimental Economics, Springer, vol. 12(3), pages 289-317, September.
  5. Nie, Pu-yan & Chen, You-hua, 2012. "Duopoly competitions with capacity constrained input," Economic Modelling, Elsevier, vol. 29(5), pages 1715-1721.
  6. Daisuke Hirata & Toshihiro Matsumura, 2011. "Price leadership in a homogeneous product market," Journal of Economics, Springer, vol. 104(3), pages 199-217, November.

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