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The endogenous formation of cartels

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  • Joachim Rosenmüller

Abstract

We discuss large but finite linear market games which are represented as minima of finitely many measures. These games describe markets in which the agents decompose into finitely many disjoint groups each of which holds a corner of the market. Most solution concepts like the core, the Shapley value, or the Walrasian equilibrium tend to favor the short side of such market excessively. That is, in the replicated limit or in the continuum version, the short side is awarded all the possible profits even though cooperation within the grand coalition is required. We show that vNM-Stable Sets differ markedly. For large but finite player sets we exhibit vNM solutions that assign wealth to the long side of the market. It turns out that the shape of the generic vNM-Stable Set suggests cartelization of the market. Copyright Springer-Verlag Berlin/Heidelberg 2003

Suggested Citation

  • Joachim Rosenmüller, 2003. "The endogenous formation of cartels," Review of Economic Design, Springer;Society for Economic Design, vol. 8(1), pages 39-62, August.
    • Handle: RePEc:spr:reecde:v:8:y:2003:i:1:p:39-62
    DOI: 10.1007/s10058-003-0092-0
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