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The Neglected Effects of Demand Characteristics on the Sustainability of Collusion

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  • Gallice, Andrea

Abstract

According to standard IO models, the characteristics of market demand (intercept, slope, elasticity) and of the technology (level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. The paper modifies this counterintuitive result by showing that all the above mentioned factors do affect the sustainability of collusion when prices are assumed to be discrete rather than continuous. The sign of these effects is unambiguous. Their magnitude varies greatly: in some cases it is totally negligible, in others it becomes extremely relevant.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6975.

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Date of creation: Sep 2008
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Handle: RePEc:cpr:ceprdp:6975

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Keywords: Bertrand supergames; collusion; market demand;

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  1. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January.
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  3. Dufwenberg, Martin & Gneezy, Uri & Goeree, Jacob K. & Nagel, Rosemarie, 2002. "Price Floors and Competition," Research Papers in Economics 2002:13, Stockholm University, Department of Economics.
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  8. Robert Porter, 2005. "Detecting Collusion," Review of Industrial Organization, Springer, vol. 26(2), pages 147-167, December.
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Cited by:
  1. Zimmerman, Paul R., 2010. "On the sustainability of collusion in Bertrand supergames with discrete pricing and nonlinear demand," MPRA Paper 20249, University Library of Munich, Germany.

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