Competition versus Collusion: The Impact of Consumer Inertia
AbstractWe consider a model of dynamic price competition to analyze the impact of consumer inertia on the ability of firms to sustain high prices. Three main consequences are identified, all of which contrast with predictions of the standard model of collusion: (i) maintaining high prices does not require punishment strategies when firms are sufficiently myopic, (ii) if buyers are sufficiently inert, then high prices can be sustained for all discount factors, and (iii) the ability to maintain high prices may depend non-monotonically on the level of the discount factor when the industry exhibits network externalities and demand is sufficiently viscous. These results provide a number of interesting insights with regard to competitive and collusive pricing behavior. In particular, we illustrate how direct communication between firms may facilitate collusion.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 024.
Date of creation: 2010
Date of revision:
Contact details of provider:
Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
Other versions of this item:
- Bos Iwan & Peeters Ronald & Pot Erik, 2012. "Competition versus Collusion: The Impact of Consumer Inertia," Research Memoranda 047, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
- NEP-ALL-2010-05-22 (All new papers)
- NEP-COM-2010-05-22 (Industrial Competition)
- NEP-CSE-2010-05-22 (Economics of Strategic Management)
- NEP-IND-2010-05-22 (Industrial Organization)
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.:
- Padilla A. Jorge, 1995. "Revisiting Dynamic Duopoly with Consumer Switching Costs," Journal of Economic Theory, Elsevier, vol. 67(2), pages 520-530, December.
- Svend Albæk & Peter Møllgaard & Per Baltzer Overgaard, 1997.
"Government-Assisted Oligopoly Coordination? A Concrete Case,"
CIE Discussion Papers
1997-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- Albaek, Svend & Mollgaard, Peter & Overgaard, Per B, 1997. "Government-Assisted Oligopoly Coordination? A Concrete Case," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 429-43, December.
- Chen, Yongmin & Rosenthal, Robert W., 1996.
"Dynamic duopoly with slowly changing customer loyalties,"
International Journal of Industrial Organization,
Elsevier, vol. 14(3), pages 269-296, May.
- Chen, Y. & Rosenthal, R.W., 1992. "Dynamic Duopoly with Slowly Changing Customer Loyalties," Papers 37, Boston University - Industry Studies Programme.
- Yongmin Chen & Robert W. Rosenthal, 1992. "Dynamic Duopoly with Slowly Changing Customer Loyalties," Papers 0037, Boston University - Industry Studies Programme.
- Farrell, Joseph & Shapiro, Carl, 1988.
"Dynamic Competition with Switching Costs,"
Department of Economics, Working Paper Series
qt1h02g9q4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- David Genesove & Wallace P. Mullin, 2001.
"Rules, Communication and Collusion: Narrative Evidence from the Sugar Institute Case,"
NBER Working Papers
8145, National Bureau of Economic Research, Inc.
- David Genesove & Wallace P. Mullin, 2001. "Rules, Communication, and Collusion: Narrative Evidence from the Sugar Institute Case," American Economic Review, American Economic Association, vol. 91(3), pages 379-398, June.
- Genesove, David & Mullin, Wallace P, 2001. "Rules, Communication and Collusion: Narrative Evidence from the Sugar Institute Case," CEPR Discussion Papers 2739, C.E.P.R. Discussion Papers.
- Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
- Pot Erik & Flesch János & Peeters Ronald & Vermeulen Dries, 2011.
"Dynamic Competition with Consumer Inertia,"
016, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
- Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
- Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
- Beggs, Alan W & Klemperer, Paul, 1992.
"Multi-period Competition with Switching Costs,"
Econometric Society, vol. 60(3), pages 651-66, May.
- Radner, Roy, 2003. "Viscous demand," Journal of Economic Theory, Elsevier, vol. 112(2), pages 189-231, October.
- McCutcheon, Barbara, 1997. "Do Meetings in Smoke-Filled Rooms Facilitate Collusion?," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 330-50, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Bollen).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.