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On the profitability of collusion in location games

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  • Huck, Steffen
  • Knoblauch, Vicki
  • Muller, Wieland

Abstract

In this note we take a first step towards the analysis of collusion in markets with spatial competition, focusing on the case of pure location choices. We find that collusion can only be profitable if a coalition contains more than half of all players. This result holds for location games played in k-dimensional Euclidean space as long as consumers are distributed via atomless density functions. For competition on the unit interval, unit circle, and unit square we also derive sufficient conditions for collusion to be profitable. -- Wir untersuchen Kollusion in Märkten, in denen die einzige strategische Variable der Akteure ihre Ortswahl ist. Für Spiele in k-dimensionalen Euklidischen Räumen mit massepunktfreien Verteilungen zeigen wir, dass Kollusion nur profitabel sein kann, wenn wenigstens die Hälfte aller Akteure kolludieren. Für Wettbewerb auf dem Einheitsintervall, dem Einheitskreis und dem Einheitsquadrat etablieren wir hinreichende Bedingungen für die Profitabilität von Kollusion.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 54 (2003)
Issue (Month): 3 (November)
Pages: 499-510

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Handle: RePEc:eee:juecon:v:54:y:2003:i:3:p:499-510

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Web page: http://www.elsevier.com/locate/inca/622905

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  1. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 185-99, May.
  2. A Okabe & A Suzuki, 1987. "Stability of spatial competition for a large number of firms on a bounded two-dimensional space," Environment and Planning A, Pion Ltd, London, Pion Ltd, London, vol. 19(8), pages 1067-1082, August.
  3. Simon, Leo K, 1987. "Games with Discontinuous Payoffs," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(4), pages 569-97, October.
  4. Shaked, A, 1975. "Non-existence of Equilibrium for the Two-dimensional Three-firms Location Problem," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 42(1), pages 51-56, January.
  5. Shaked, A, 1982. "Existence and Computation of Mixed Strategy Nash Equilibrium for 3-Firms Location Problem," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 31(1-2), pages 93-96, September.
  6. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(1), pages 1-26, January.
  7. Knoblauch, Vicki, 2002. "An Easy Proof That a Square Lattice Is an Equilibrium for Spatial Competition in the Plane," Journal of Urban Economics, Elsevier, Elsevier, vol. 51(1), pages 46-53, January.
  8. B.Curtis Eaton & Richard G. Lipsey, 1972. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Working Papers, Queen's University, Department of Economics 87, Queen's University, Department of Economics.
  9. Aoyagi, Masaki & Okabe, Atsuyuki, 1993. "Spatial competition of firms in a two-dimensional bounded market," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 23(2), pages 259-289, April.
  10. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(1), pages 27-41, January.
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Cited by:
  1. Steffen Huck & Kai A. Konrad & Wieland Müller, 2005. "Merger without Cost Advantages," CESifo Working Paper Series, CESifo Group Munich 1461, CESifo Group Munich.
  2. Dimitrios Xefteris & Nicholas Ziros, 2014. "A Spatial Model of Perfect Competition," University of Cyprus Working Papers in Economics, University of Cyprus Department of Economics 05-2014, University of Cyprus Department of Economics.
  3. Daniel Strobach, 2006. "Competition between airports with an application to the state of Baden-Württemberg," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim, Department of Economics, University of Hohenheim, Germany 272/2006, Department of Economics, University of Hohenheim, Germany.

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