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Entry Effects on Cartel Stability and the Joint Executive Committee

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  • Helder Vasconcelos

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Abstract

We extend Green and Porter's (1984) model to consider entry, by studying two alternative types of incumbent firms' post-entry reactions: cartel breakdown and accommodation of the entrants. We show that cooperation is more unstable if entry costs are low and if incumbents accommodate the new firms. We then test the applicability of the theoretical model to the type of collusion that characterizes the nineteenth-century railroad cartel in the US. The results provide support for the model predictions. In particular, cartel stability has been found to be negatively correlated with the number of firms in the agreement.

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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 24 (2004)
Issue (Month): 3 (05)
Pages: 219-241

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Handle: RePEc:kap:revind:v:24:y:2004:i:3:p:219-241

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Web page: http://www.springerlink.com/link.asp?id=100336

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Cited by:
  1. J. Seldeslachts & T. Duso & E. Pennings, 2012. "On the Stability of Research Joint Ventures: Implications for Collusion," Review of Business and Economic Literature, Intersentia, vol. 57(1), pages 98-109, March.
  2. Goppelsroeder, Marie, 2009. "Entry in Collusive Markets: An Experimental Study," MPRA Paper 14707, University Library of Munich, Germany.
  3. João Correia-da-Silva & Joana Pinho & Hélder Vasconcelos, 2014. "Sustaining collusion in markets with a general evolution of demand," FEP Working Papers 537, Universidade do Porto, Faculdade de Economia do Porto.

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