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Collusion in Quality-Segmented Markets

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  • Bos, Iwan
  • Marini, Marco A.

Abstract

This paper analyzes price collusion in a repeated game with two submarkets; a standard and a premium quality segment. Within this setting, we study four types of price-fixing agreement: (i) a segment-wide cartel in the premium submarket only, (ii) a segment-wide cartel in the standard submarket only, (iii) two segment-wide cartels, and (iv) an industry-wide cartel. We present a complete characterization of the collusive pricing equilibrium and examine the corresponding effect on market shares and welfare. Partial cartels operating in a sufficiently large segment lose market share and the industry-wide cartel prefers to maintain market shares at pre-collusive levels. The impact on consumer and social welfare critically depends on the cost of producing quality. Moreover, given that there is a cartel, more collusion can be beneficial for society as a whole.

Suggested Citation

  • Bos, Iwan & Marini, Marco A., 2020. "Collusion in Quality-Segmented Markets," 2030 Agenda 307986, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemgc:307986
    DOI: 10.22004/ag.econ.307986
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    References listed on IDEAS

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    1. Marco A. Marini, 2018. "Collusive agreements in vertically differentiated markets," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 3, pages 34-56, Edward Elgar Publishing.
    2. Bos, Iwan & Marini, Marco A., 2019. "Cartel stability under quality differentiation," Economics Letters, Elsevier, vol. 174(C), pages 70-73.
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    More about this item

    Keywords

    Demand and Price Analysis;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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