Stable cartels revisited
AbstractThis paper analyzes cartel stability when firms are farsighted. It studies a price leadership model á la D’ Aspremont et al. (1983), where the dominant cartel acts as a leader by determining the market price, while the fringe behaves competitively. According to D’ Aspremont et al. ‘s (1983) approach a cartel is stable if no firm has an incentive to either enter or exit the cartel. In deciding whether to deviate or not, a firm compares its status quo with the outcome its unilateral deviation induces. However, the firm fails to examine whether the induced outcome will indeed become the new status quo that will determine its profits. Although the firm anticipates the price adjustment following its deviation, it ignores the possibility that more firms may exit (or enter) the cartel. In other words, the firm does not consider the fact that the outcome immediately induced by its deviation may not be stable itself. We propose a notion of cartel stability that allows firms to fully foresee the result of their deviation. Our solution concept is built in the spirit of von Neumann and Morgenstern’s (1944) stable set, while it modifies the dominance relation following Harsanyi’s (1974) criticism. We show that there always exists a unique, non-empty set of stable cartels. Copyright Springer-Verlag Berlin/Heidelberg 2005
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 26 (2005)
Issue (Month): 4 (November)
Contact details of provider:
Web page: http://link.springer.de/link/service/journals/00199/index.htm
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. Rothschild, .
"On the Limits to the Growth of Coalitions by Means of Transfers,"
ec11/95, Department of Economics, University of Lancaster.
- Rothschild, R., 1998. "On the limits to the growth of coalitions by means of transfers," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 251-262, February.
- 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.
- Prokop, Jacek, 1999. "Process of dominant-cartel formation," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 241-257, February.
- John C. Harsanyi, 1974. "An Equilibrium-Point Interpretation of Stable Sets and a Proposed Alternative Definition," Management Science, INFORMS, vol. 20(11), pages 1472-1495, July.
- Donsimoni, Marie-Paule, 1985. "Stable heterogeneous cartels," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 451-467, December.
- 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.
- Licun Xue, 1998. "Coalitional stability under perfect foresight," Economic Theory, Springer, vol. 11(3), pages 603-627.
- R.Rothschild, . "The Stability Of Dominant-Group Cartels," Working Papers ec5/92, Department of Economics, University of Lancaster.
- Hassan Benchekroun & Licun Xue, 2006.
"Cartel Stability In A Dynamic Oligopoly With Sticky Prices,"
Departmental Working Papers
2005-08, McGill University, Department of Economics.
- David M. McEvoy & James J. Murphy & John M. Spraggon & John K. Stranlund, 2008.
"The Problem of Maintaining Compliance within Stable Coalitions: Experimental Evidence,"
08-10, Department of Economics, Appalachian State University.
- David M. McEvoy & James J. Murphy & John M. Spraggon & John K. Stranlund, 2011. "The problem of maintaining compliance within stable coalitions: experimental evidence," Oxford Economic Papers, Oxford University Press, vol. 63(3), pages 475-498, July.
- David M. McEvoy & James J. Murphy & John M. Spraggon & John K. Stranlund, 2010. "The problem of maintaining compliance within stable coalitions: experimental evidence," Working Papers 2010-02, University of Alaska Anchorage, Department of Economics.
- David M. McEvoy & James J. Murphy & John M. Spraggon & John K. Stranlund, 2008. "The Problem of Maintaining Compliance within Stable Coalitions: Experimental Evidence," Working Papers 2008-2, University of Massachusetts Amherst, Department of Resource Economics.
- David M. McEvoy & John K. Stranlund, 2007.
"Costly Enforcement of Voluntary Environmental Agreements with Industries,"
07-15, Department of Economics, Appalachian State University.
- David M. McEvoy & John K. Stranlund, 2007. "Costly Enforcement of Voluntary Environmental Agreements with Industries," Working Papers 2007-11, University of Massachusetts Amherst, Department of Resource Economics.
- Marc Escrihuela Villar, 2008.
"A note on cartel stability and endogenous sequencing with tacit collusion,"
DEA Working Papers
29, Universitat de les Illes Balears, Departament d'Economía Aplicada.
- Marc Escrihuela-Villar, 2009. "A note on cartel stability and endogenous sequencing with tacit collusion," Journal of Economics, Springer, vol. 96(2), pages 137-147, March.
- Sheng-Chieh Huang & Xiao Luo, 2008. "Stability, sequential rationality, and subgame consistency," Economic Theory, Springer, vol. 34(2), pages 309-329, February.
- McEvoy, David M. & Stranlund, John K., 2006.
"Enforcing 'Self-Enforcing' International Environmental Agreements,"
2006 Annual meeting, July 23-26, Long Beach, CA
21403, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- David M. McEvoy & John K. Stranlund, 2006. "Enforcing ‘Self-Enforcing’ International Environmental Agreements," Working Papers 2006-6, University of Massachusetts Amherst, Department of Resource Economics.
- Xiao Luo, 2009. "On the foundation of stability," Economic Theory, Springer, vol. 40(2), pages 185-201, August.
- Yoshio Kamijo & Shigeo Muto, 2010. "Farsighted Coalitional Stability Of A Price Leadership Cartel," The Japanese Economic Review, Japanese Economic Association, vol. 61(4), pages 455-465, December.
- Thoron, Sylvie, 2003.
"Which Acceptable Agreements are Equilibria?,"
Royal Economic Society Annual Conference 2003
204, Royal Economic Society.
- Prokop, Jacek, 2011.
"Powstawanie i stabilność karteli heterogenicznych
[The emergence and stability of heterogeneous cartels]," MPRA Paper 43712, University Library of Munich, Germany.
- Johannes Paha, 2010. "Simulation and Prosecution of a Cartel with Endogenous Cartel Formation," MAGKS Papers on Economics 201007, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- Michèle Breton & Michel Keoula, 2012. "Farsightedness in a Coalitional Great Fish War," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 51(2), pages 297-315, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.