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Multi-market Collusion with Territorial Allocation

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Author Info

  • ADITYA BHATTACHARJEA

    (Department of Economics, Delhi School of Economics, Delhi, India)

  • UDAY BHANU SINHA

    (Department of Economics, Delhi School of Economics, Delhi, India)

Abstract

This paper develops a supergame model of collusion between price-setting oligopolists located in different markets separated by trade costs. The firms produce a homogenous good and sustain collusion based on territorial allocation of markets. We first show, in a more general framework than some earlier literature, that a reduction in trade costs can paradoxically increase the sustainability of collusion. Then we prove a new paradox where the scope for collusion may be enhanced by an increase in the number of firms. We discuss several implications for trade and antitrust policy in this context.

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Bibliographic Info

Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 217.

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Length: 41 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:cde:cdewps:217

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Related research

Keywords: Multimarket contact; collusion; trade costs; territorial allocation; cartels;

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  1. Bhattacharjea, Aditya, 1995. "Strategic tariffs and endogenous market structures: Trade and industrial policies under imperfect competition," Journal of Development Economics, Elsevier, vol. 47(2), pages 287-312, August.
  2. Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer, vol. 46(1), pages 99-125, January.
  3. John Gross & William L. Holahan, 2003. "Credible Collusion in Spatially Separated Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 299-312, February.
  4. Stephen Davies & Matthew Olczak & Heather Coles, 2007. "Tacit Collusion, Firm Asymmetries and Numbers: Evidence from EC Merger Cases," Working Papers 07-7, Centre for Competition Policy, University of East Anglia.
  5. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  6. K. C. Fung, 1991. "Collusive Intra-industry Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 391-404, May.
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