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A Dynamic Oligopoly with Collusion and Price Wars

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  • Fershtman, C.
  • Pakes, A.

    (Tilburg University, Center for Economic Research)

Abstract

We provide a collusive framework with heterogeneity among firms, investment, entry, and exit. It is a symmetric-information model in which it is hard to sustain collusion when there is an active firm that is likely to exit in the near future. Numerical analysis is used to compare a collusive to a noncollusive environment. Only the collusive industry generates price wars. Also, the collusive industry offers both more and higher-quality products to consumers, albeit often at a higher price. The positive effect of collusion on variety and quality more than compensates for the negative effect of collusive prices, so that consumer surplus is larger with collusion.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1999-48.

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Date of creation: 1999
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Handle: RePEc:dgr:kubcen:199948

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  1. Kyle Bagwell & Robert Staiger, 1997. "Collusion Over the Business Cycle," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 82-106, Spring.
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  10. Fershtman, Chaim & Gandal, Neil, 1994. "Disadvantageous semicollusion," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 141-154, June.
  11. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
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  13. Harrington, Joseph Jr., 1989. "Collusion among asymmetric firms: The case of different discount factors," International Journal of Industrial Organization, Elsevier, vol. 7(2), pages 289-307, June.
  14. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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Cited by:
  1. Asker, John, 2010. "Leniency and post-cartel market conduct: Preliminary evidence from parcel tanker shipping," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 407-414, July.
  2. Kano, Kazuko, 2011. "Menu Costs and Dynamic Duopoly," MPRA Paper 38909, University Library of Munich, Germany.
  3. Christian Bayer, 2004. "The Other Side of Limited Liability: Predatory Behavior and Investment Timing," Industrial Organization 0407001, EconWPA.
  4. Ciliberto, Federico & Williams, Jonathan, 2010. "Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry," MPRA Paper 24888, University Library of Munich, Germany.
  5. Luis Cabral, 2014. "We're Number 1: Price Wars for Market Share Leadership," Working Papers 14-01, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series 2013_09, Department of Economics, Loughborough University, revised Sep 2013.
  7. David S. Evans & Michael Salinger, 2004. "An Empirical Analysis of Bundling and Tying: Over-the-Counter Pain Relief and Cold Medicines," CESifo Working Paper Series 1297, CESifo Group Munich.
  8. Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
  9. Bos Iwan & Pot Erik, 2010. "Welfare-Enhancing Hard Core Cartels," Research Memorandum 004, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  10. Hongbin Cai & Uday Rajan, 2005. "Incentive Compatible Collusion and Investment," Annals of Economics and Finance, Society for AEF, vol. 6(1), pages 37-52, May.
  11. David S. Evans & Michael Salinger, 2005. "Curing Sinus Headaches and Tying Law: An Empirical Analysis of Bundling Decongestants and Pain Relievers," CESifo Working Paper Series 1519, CESifo Group Munich.

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