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Profit-Sharing in a Collusive Industry

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Author Info
Martin J. Osborne (Columbia University)
Carolyn Pitchik (New York University)

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Abstract

We study a model in which collusive duopolists divide up the monopoly profit according to their relative bargaining power. We are particularly interested in how the negotiated profit shares depend on the sizes of the firms. If each can produce at the same constant unit cost up to its capacity, we show that the profit per unit of capacity of the small firm is higher than that of the large one. We also study how the ratio of the negotiated profits depends on the size of demand relative to industry capacity, and how this ratio changes with variations in demand.

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File URL: http://cowles.econ.yale.edu/P/cd/d06b/d0668.pdf
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Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 668.

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Length: 25 pages
Date of creation: Jun 1983
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Handle: RePEc:cwl:cwldpp:668

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Radner, Roy, 1980. "Collusive behavior in noncooperative epsilon-equilibria of oligopolies with long but finite lives," Journal of Economic Theory, Elsevier, vol. 22(2), pages 136-154, April. [Downloadable!] (restricted)
  2. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April. [Downloadable!] (restricted)
  3. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 1-26, January. [Downloadable!] (restricted)
  4. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
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  5. Osborne, Dale K, 1976. "Cartel Problems," American Economic Review, American Economic Association, vol. 66(5), pages 835-44, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Schmalensee, Richard., 1985. "Competitive advantage and collusion," Working papers 1724-85., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  2. Tay-Cheng Ma, 2005. "Strategic investment and excess capacity: A study of the Taiwanese flour industry," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 153-170, May. [Downloadable!]
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