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A note on cartel stability and endogenous sequencing with tacit collusion

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  • Marc Escrihuela-Villar

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Abstract

We use the concept of cartel stability defined by d'Aspremont et al. (1983) to obtain that the sequence of play between the cartel and the fringe affects cartel stability in a quantity-competition setting where firms tacitly collude. We also prove that an endogenous sequence of play between a cartel and a fringe depends on the discount factor. If the discount factor is large enough, the cartel and the fringe simultaneously choose quantities since the stable cartel may contain more firms under simultaneous play than under cartel leadership. This is due to the fact that under simultaneous play cartel firms have incentives to participate in the cartel because otherwise no collusion is possible.

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File URL: http://hdl.handle.net/10.1007/s00712-008-0053-8
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Bibliographic Info

Article provided by Springer in its journal Journal of Economics.

Volume (Year): 96 (2009)
Issue (Month): 2 (March)
Pages: 137-147

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Handle: RePEc:kap:jeczfn:v:96:y:2009:i:2:p:137-147

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Web page: http://www.springerlink.com/link.asp?id=108909

Related research

Keywords: Collusion; Cartel stability; Stackelberg leadership; L11; L41; D43;

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References

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  1. Albaek, Svend, 1990. "Stackelberg Leadership as a Natural Solution under Cost Uncertainty," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 335-47, March.
  2. Sylvie Thoron, 1998. "Formation of a Coalition-Proof Stable Cartel," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 63-76, February.
  3. Morasch, Karl, 2000. "Strategic alliances as Stackelberg cartels - concept and equilibrium alliance structure," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 257-282, February.
  4. Thoron, Sylvie, 2004. "Which acceptable agreements are equilibria?," Mathematical Social Sciences, Elsevier, vol. 47(1), pages 111-134, January.
  5. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February.
  6. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
  7. Sherrill Shaffer, 1993. "Stable cartels with a Cournot fringe," Working Papers 93-8, Federal Reserve Bank of Philadelphia.
  8. Donsimoni, Marie-Paule & Economides, Nicholas S & Polemarchakis, Herakles M, 1986. "Stable Cartels," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 317-27, June.
  9. Andrea Lofaro, 1999. "When imperfect collusion is profitable," Journal of Economics, Springer, vol. 70(3), pages 235-259, October.
  10. Effrosyni Diamantoudi, 2005. "Stable cartels revisited," Economic Theory, Springer, vol. 26(4), pages 907-921, November.
  11. Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, vol. 80(1), pages 69-82, March.
  12. repec:aea:jeclit:v:44:y:2006:i:1:p:43-95 is not listed on IDEAS
  13. Reinhard Selten, 1973. "A Simple Model of Imperfect Competition, where 4 are Few and 6 are Many," Working Papers 008, Bielefeld University, Center for Mathematical Economics.
  14. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  15. Davidson, Carl & Deneckere, Raymond, 1984. "Horizontal mergers and collusive behavior," International Journal of Industrial Organization, Elsevier, vol. 2(2), pages 117-132, June.
  16. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
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Cited by:
  1. Karp, Larry & Simon, Leo, 2012. "Participation Games and international environmental agreements: a nonparametric model," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5693n1nf, Department of Agricultural & Resource Economics, UC Berkeley.
  2. Marc Escrihuela-Villar & Jorge Guillen, 2011. "On Collusion and Industry Size," Annals of Economics and Finance, Society for AEF, vol. 12(1), pages 31-40, May.
  3. Ghislandi, Simone, 2011. "Competition and the Reference Pricing Scheme for pharmaceuticals," Journal of Health Economics, Elsevier, vol. 30(6), pages 1137-1149.

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