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Product differentiation, price discrimination and collusion

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  • Stefano Colombo

    ()
    (DISCE, Università Cattolica)

Abstract

The existing literature which analyses the relationship between the product differentiation degree and the sustainability of a collusive agreement on price assumes that firms cannot price discriminate, and concludes that there is a negative relationship between the product differentiation degree and the critical discount factor. This paper, in contrast, assumes that firms are able to price discriminate. Within the Hotelling framework, three different collusive schemes are studied: optimal collusion on discriminatory prices; optimal collusion on a uniform price; collusion not to discriminate. We obtain that the critical discount factor of the first and the third collusive scheme does not depend on the product differentiation degree, while the critical discount factor of the second collusive scheme depends positively on the product differentiation degree. Moreover, we show that suboptimal collusion is more difficult to sustain than optimal collusion.

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File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0085.pdf
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Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0085.

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Length: nn pages 36
Date of creation: Mar 2009
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Handle: RePEc:ctc:serie3:ief0085

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Web page: http://www.unicatt.it/Istituti/EconomiaFinanza
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Keywords: Horizontal differentiation; Price discrimination; Tacit collusion;

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References

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  1. Qihong Liu & Konstantinos Serfes, 2002. "Quality of Information and Oligopolistic Price Discrimination," Industrial Organization, EconWPA 0203004, EconWPA, revised 06 Mar 2002.
  2. Hurter, Arthur Jr & Lederer, Phillip J., 1985. "Spatial duopoly with discriminatory pricing," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 15(4), pages 541-553, November.
  3. Stefano Colombo, 2009. "Sustainability of collusion with imperfect price discrimination and inelastic demand functions," Economics Bulletin, AccessEcon, vol. 29(3), pages 1687-1694.
  4. Chang, Myong-Hun, 1992. "Intertemporal Product Choice and Its Effects on Collusive Firm Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 773-93, November.
  5. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 12(2), pages 155-177, June.
  6. THISSE, Jacques-François & VIVES, Xavier, . "On the strategic choice of spatial price policy," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -793, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Ross, Thomas W., 1992. "Cartel stability and product differentiation," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 10(1), pages 1-13, March.
  8. Hamilton, Jonathan H. & Thisse, Jacques-Francois & Weskamp, Anita, 1989. "Spatial discrimination : Bertrand vs. Cournot in a model of location choice," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 19(1), pages 87-102, February.
  9. HAMILTON, Jonathan & THISSE, Jacques-François, . "Duopoly with spatial and quantity-dependent price discrimination," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -998, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 623-40, May.
  11. Chang, Myong-Hun, 1991. "The effects of product differentiation on collusive pricing," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 9(3), pages 453-469, September.
  12. Hackner, Jonas, 1995. "Endogenous product design in an infinitely repeated game," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 13(2), pages 277-299.
  13. Albaek, Svend & Lambertini, Luca, 1998. "Collusion in differentiated duopolies revisited," Economics Letters, Elsevier, Elsevier, vol. 59(3), pages 305-308, June.
  14. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, Elsevier, vol. 11(1-2), pages 37-42.
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Citations

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Cited by:
  1. Stefano Colombo, 2012. "Collusion in two models of spatial competition with quantity-setting firms," The Annals of Regional Science, Springer, Springer, vol. 48(1), pages 45-69, February.
  2. Stefano Colombo, 2011. "Pricing Policy and Partial Collusion," Journal of Industry, Competition and Trade, Springer, Springer, vol. 11(4), pages 325-349, December.
  3. Colombo, Stefano, 2013. "Cartels in the unidirectional Hotelling model," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 690-696.
  4. Colombo, Stefano, 2012. "An indifference result concerning collusion in spatial frameworks," Research in Economics, Elsevier, Elsevier, vol. 66(1), pages 18-21.
  5. Stefano Colombo, 2012. "Colluding on a Price Increase," Journal of Industry, Competition and Trade, Springer, Springer, vol. 12(4), pages 365-371, December.
  6. Stefano Colombo, 2011. "Spatially asymmetric firms and the sustainability of a price agreement," Economics Bulletin, AccessEcon, vol. 31(3), pages 2414-2421.

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