This paper contributes to the study of tacit collusion by analyzing infinitely repeated multiunit uniform price auctions in a symmetric oligopoly with capacity constrained firms. Under both the Market Clearing and Maximum Accepted Price rules of determining the uniform price, we show that when each firm sets a price-quantity pair specifying the firm's minimum acceptable price and the maximum quantity the firm is willing to sell at this price, there exists a range of discount factors for which the monopoly outcome with equal sharing is sustainable in the uniform price auction, but not in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this outcome. We extend these results to the case where firms may set bids that are arbitrary step functions of price-quantity pairs with any finite number of price steps. Surprisingly, under the Maximum Accepted Price rule, firms need employ no more than two price steps to minimize the value of the discount factor above which the perfectly collusive outcome with equal sharing is sustainable on a stationary path. Under the Market Clearing Price rule, only one step is required. That is, within the class of step bidding functions with a finite number of steps, maximal collusion is attained with simple price-quantity strategies exhibiting capacity withholding.
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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number
636.
Length: 36 pages Date of creation: 01 Mar 2005 Date of revision: Handle: RePEc:hhs:iuiwop:0636
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References listed on IDEAS 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.:
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"Price Leadership,"
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[Downloadable!] (restricted)
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Raymond Deneckere & Dan Kovenock, 1988.
"Price Leadership,"
Discussion Papers
773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Natalia Fabra & Nils-Henrik von der Fehr & David Harbord, 2002.
"Designing Electricity Auctions,"
Microeconomics
0211017, EconWPA, revised 31 Aug 2003.
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