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Sustainable collusion on separate markets

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  • BELLEFLAMME, Paul
  • BLOCH, Francis

Abstract

When firms can supply several separate markets, collusion can take two forms. Either firms establish production quotas on all the markets, or they share markets. This paper compares production quotas and market sharing agreements in a Cournot duopoly where firms incur a fixed cost for serving each market. We show that there exists a threshold value of the fixed cost such that collusion is easier to sustain with production quotas below the threshold and with market sharing agreements above the threshold. These results are obtained both under Nash reversion strategies and the globally optimal punishment strategies introduced by Abreu (1986).

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006059.

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Date of creation: 00 Jun 2006
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Handle: RePEc:cor:louvco:2006059

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Keywords: implicit collusion; market sharing agreements; production quotas; optimal punishment;

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References

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  1. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  2. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  3. 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.
  4. Paul Belleflamme & Francis Bloch, 2001. "Market Sharing Agreements and Collusive Networks," Working Papers 443, Queen Mary, University of London, School of Economics and Finance.
  5. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  6. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  7. 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.
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Cited by:
  1. Kai Andree & Mike Schwan, 2012. "Collusive market sharing with spatial competition," Volkswirtschaftliche Diskussionsbeiträge 105, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
  2. Yasunori Okumura, 2011. "A dynamic analysis of collusive networks," Review of Economic Design, Springer, vol. 15(4), pages 317-336, December.

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