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Countervailing power? Collusion in markets with decentralized trade

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  • Nadia Burani

    ()

  • Clara Ponsati

    ()

Abstract

We consider the collective incentives of buyers and sellers to form cartels in markets where trade is realized through decentralized pairwise bargaining. Cartels are coalitions of buyers or sellers that limit market participation and compensate inactive members for abstaining from trade. In a stable market outcome, cartels set Nash equilibrium quantities and cartel memberships are immune to defections. We prove that the set of stable market outcomes is non-empty and we provide its full characterization. Stable market outcomes are of two types: (i) at least one cartel actively restrains trade and the levels of market participation are balanced, or (ii) only one cartel, eventually the cartel that forms on the long side of the market, is active and it reduces trade slightly below the opponent's.

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Bibliographic Info

Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 15 (2011)
Issue (Month): 2 (June)
Pages: 91-120

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Handle: RePEc:spr:reecde:v:15:y:2011:i:2:p:91-120

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Related research

Keywords: Decentralized trade; Pairwise bargaining; Bilateral cartel formation; Cartel stability; Countervailing power; C78; D43; L11;

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  1. Moreno, Diego & Wooders, John, 2002. "Prices, Delay, and the Dynamics of Trade," Journal of Economic Theory, Elsevier, vol. 104(2), pages 304-339, June.
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