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Competitive Prices as Profit-Maximizing Cartel Prices

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Author Info

  • Harold Houba

    (VU University Amsterdam)

  • Evgenia Motchenkova

    (VU University Amsterdam)

  • Quan Wen

    (Vanderbilt University)

Abstract

Even under antitrust enforcement, firms may still form a cartel in an infinitely-repeated oligopoly model when the discount factor is sufficiently close to one. We present a linear oligopoly model where the profit-maximizing cartel price converges to the competitive equilibrium price as the discount factor goes to one. We then identify a set of necessary conditions for this seemingly counter-intuitive result.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-047/1.

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Date of creation: 27 Apr 2010
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Handle: RePEc:dgr:uvatin:20100047

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Web page: http://www.tinbergen.nl

Related research

Keywords: Antitrust enforcement; Cartel; Oligopoly; Repeated game;

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