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Collusion and Predation Under Cournot Competition

Author

Listed:
  • Emilie Dargaud

    (Univ Lyon, Université Lumière Lyon 2, GATE, UMR 5824, F-69130 Ecully, France)

  • Maxime Menuet

    (LEO, University of Orleans, Orleans, France. e-mail: maxime.menuet@univ-orleans.fr)

  • Petros G. Sekeris

    (Corresponding author: TBS Business School, 1 Place A. Jourdain, 31000 Toulouse, France)

Abstract

This paper studies how predation strategies can affect the sustainability of collusion. We demonstrate that in the presence of few competitors collusion may be sustained at equilibrium for intermediate discount factors. In such instances predation implies that punishment strategies will yield low subgame perfect payoffs, thereby making collusion easier to sustain. For low discount factors collusion is not sustainable because of the high incentives to deviate to Cournot-Nash strategies. Moreover, for high discount factors it is always optimal to predate colluding firms, thus contrasting with much of the earlier literature showing that collusion is only achievable by sufficiently patient firms.

Suggested Citation

  • Emilie Dargaud & Maxime Menuet & Petros G. Sekeris, 2022. "Collusion and Predation Under Cournot Competition," Working Papers 2213, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
  • Handle: RePEc:gat:wpaper:2213
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    References listed on IDEAS

    as
    1. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
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    4. Thomas Wiseman, 2017. "When Does Predation Dominate Collusion?," Econometrica, Econometric Society, vol. 85, pages 555-584, March.
    5. Jean-Pierre Benoit, 1984. "Financially Constrained Entry in a Game with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 490-499, Winter.
    6. Kawakami, Toshikazu & Yoshihiro, Yoshida, 1997. "Collusion under financial constraints: Collusion or predation when the discount factor is near one?," Economics Letters, Elsevier, vol. 54(2), pages 175-178, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Collusion; Predation; Cournot competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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