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When Does Predation Dominate Collusion?

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  • Thomas Wiseman

Abstract

I study repeated competition among oligopolists. The only novelty is that firms may go bankrupt and permanently exit: the probability that a firm survives a price war depends on its financial strength, which varies stochastically over time. Under some conditions including no entry, an anti‐folk theorem holds: when firms are patient, so that strength levels change relatively quickly, every Nash equilibrium involves an immediate price war that lasts until at most one firm remains. Surprisingly, the possibility of entry may facilitate collusion, as may impatience. The model can explain some observed patterns of collusion and predation.

Suggested Citation

  • Thomas Wiseman, 2017. "When Does Predation Dominate Collusion?," Econometrica, Econometric Society, vol. 85, pages 555-584, March.
    • Handle: RePEc:wly:emetrp:v:85:y:2017:i::p:555-584
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    Cited by:

    1. Argenton, Cédric, 2019. "Colluding on excluding," European Economic Review, Elsevier, vol. 113(C), pages 194-206.
    2. Emilie Dargaud & Maxime Menuet & Petros G. Sekeris, 2024. "Collusion and predation under Cournot competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(1), pages 315-325, January.
    3. Guillem Roig, 2021. "Collusive equilibria with switching costs: The effect of consumer concentration," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(1), pages 100-121, February.
    4. Dou, Winston Wei & Ji, Yan & Wu, Wei, 2021. "Competition, profitability, and discount rates," Journal of Financial Economics, Elsevier, vol. 140(2), pages 582-620.

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