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Delivered pricing and the impact of spatial differentiation on cartel stability

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  • Miklós-Thal, Jeanine

Abstract

This paper analyzes the impact of spatial differentiation on the sustainability of collusion on delivered prices. It shows that the choice of the punishment mechanism that enforces collusion is crucial for determining whether differentiation facilitates cartel pricing or not. If punishments are optimal, then differentiation tends to facilitate collusion. Optimal punishments impose minmax profits on deviators independently of the degree of differentiation. A high degree of differentiation then renders deviations less profitable, since it makes business stealing more costly but does not affect the deviator's punishment profits. Depending on the transport cost technology, excessive differentiation may have a countervailing effect, however, because it also implies high transport costs for the cartel. If collusion is sustained by standard grim trigger punishments instead, then collusion may be easiest for minimal differentiation. The reason is that competitive and thus grim trigger punishment profits are higher the higher the degree of differentiation.

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Bibliographic Info

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

Volume (Year): 26 (2008)
Issue (Month): 6 (November)
Pages: 1365-1380

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Handle: RePEc:eee:indorg:v:26:y:2008:i:6:p:1365-1380

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

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Keywords: Delivered pricing Collusion Optimal penal codes Spatial differentiation;

References

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Citations

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Cited by:
  1. Stefano Colombo, 2009. "The unidirectional Hotelling model with spatial price discrimination," Economics Bulletin, AccessEcon, vol. 29(4), pages 3031-3040.
  2. Stefano Colombo, 2011. "Pricing Policy and Partial Collusion," Journal of Industry, Competition and Trade, Springer, vol. 11(4), pages 325-349, December.
  3. Akinbosoye, Osayi & Bond, Eric W. & Syropoulos, Constantinos, 2012. "On the stability of multimarket collusion in price-setting supergames," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 253-264.
  4. Stefano Colombo, 2012. "Collusion in two models of spatial competition with quantity-setting firms," The Annals of Regional Science, Springer, vol. 48(1), pages 45-69, February.
  5. Stefano Colombo, 2009. "Sustainability of collusion with imperfect price discrimination and inelastic demand functions," Economics Bulletin, AccessEcon, vol. 29(3), pages 1687-1694.
  6. João Correia-da-Silva & Joana Pinho, 2011. "Costly horizontal differentiation," Portuguese Economic Journal, Springer, vol. 10(3), pages 165-188, December.
  7. Colombo, Stefano, 2013. "Cartels in the unidirectional Hotelling model," Economic Modelling, Elsevier, vol. 31(C), pages 690-696.

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