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Collusion and leadership

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Author Info

  • Mouraviev, Igor
  • Rey, Patrick

Abstract

The paper explores the role of price or quantity leadership in facilitating collusion. It extends the standard analysis of tacit collusion by allowing firms to make their strategic choices either simultaneously or sequentially. It is shown that price leadership indeed facilitates collusion by making it easier to punish deviations by the leader. In case of pure Bertrand competition, price leadership restores the scope for (perfect) collusion in markets where collusion would not be sustainable otherwise. When firms face asymmetric costs or offer differentiated products, price leadership can also enhance the profitability of collusion—in case of asymmetric costs, the less efficient firm must act as the leader. Finally, such leadership is less effective in case of Cournot competition since, following an aggressive deviation by the leader, the follower would rather limit its own output, making it more difficult to punish the deviation. Still, quantity leadership may enhance collusion when it is already somewhat effective in a simultaneous move setting.

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Bibliographic Info

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

Volume (Year): 29 (2011)
Issue (Month): 6 ()
Pages: 705-717

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Handle: RePEc:eee:indorg:v:29:y:2011:i:6:p:705-717

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

Related research

Keywords: Collusion; Price leadership;

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Cited by:
  1. Marco Marini & Giorgio Rodano, 2012. "Sequential vs Collusive Payoffs in Symmetric Duopoly Games," DIAG Technical Reports 2012-06, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  2. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets," Discussion Papers in Economics 16179, University of Munich, Department of Economics.
  3. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market," Discussion Papers in Economics 16182, University of Munich, Department of Economics.
  4. Aichele, Markus, 2013. "Abuse of forward contracts to semi-collude in volatile markets," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79755, Verein für Socialpolitik / German Economic Association.
  5. 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).
  6. Joseph E. Harrington, Jr., 2012. "A Theory of Tacit Collusion," Economics Working Paper Archive 588, The Johns Hopkins University,Department of Economics.

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