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Profit-Sharing in a Collusive Industry

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  • Martin J. Osborne

    (Columbia University)

  • Carolyn Pitchik

    (New York University)

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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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 668.

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Length: 25 pages
Date of creation: Jun 1983
Date of revision:
Publication status: Published in European Economic Review (1983), 22: 59-74
Handle: RePEc:cwl:cwldpp:668

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References

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  1. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  2. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  3. 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.
  4. Osborne, Dale K, 1976. "Cartel Problems," American Economic Review, American Economic Association, vol. 66(5), pages 835-44, December.
  5. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
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Cited by:
  1. Macleod, W. Bentley, . "A theory of conscious parallelism," CORE Discussion Papers RP -629, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Schmalensee, R., 1985. "Competitive advantage and collusion," CORE Discussion Papers 1985043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Ma, Tay-Cheng, 2008. "Disadvantageous collusion and government regulation," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 168-185, January.
  4. Aitor Ciarreta & Carlos Gutiérrez-Hita, 2012. "Collusive behaviour under cost asymmetries when firms compete in supply functions," Journal of Economics, Springer, vol. 106(3), pages 195-219, July.
  5. 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.

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