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The Neglected Effects of Demand Characteristics on the Sustainability of Collusion

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  • Andrea Gallice

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Abstract

According to traditional IO models, the characteristics of market demand (intercept, slope, elasticity) and of technology (level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. The paper modifies this counterintuitive result by showing that all the above mentioned factors do a¤ect the sustainability of collusion when prices are assumed to be discrete rather than continuous. The sign of these effects is unambiguous. Their magnitude varies greatly: in some cases it is totally negligible, in others it becomes extremely relevant.

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File URL: http://www.icer.it/docs/wp2008/ICERwp03-08.pdf
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Bibliographic Info

Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 03-2008.

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Length: 20 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:icr:wpicer:03-2008

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Keywords: collusion; market demand; Bertrand supergames.;

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  1. Vasconcelos, Helder, 2008. "Sustaining Collusion in Growing Markets," CEPR Discussion Papers 6865, C.E.P.R. Discussion Papers.
  2. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, April.
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  6. Dufwenberg, Martin & Gneezy, Uri, 1999. "Price Competition and Market Concentration: An experimental Study," Research Papers in Economics 1999:4, Stockholm University, Department of Economics.
  7. David Collie, 2004. "Collusion and the elasticity of demand," Economics Bulletin, AccessEcon, vol. 12(3), pages 1-6.
  8. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
  9. Robert Porter, 2005. "Detecting Collusion," Review of Industrial Organization, Springer, vol. 26(2), pages 147-167, December.
  10. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  11. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
  12. Kaushik Basu, 2006. "Consumer Cognition and Pricing in the Nines in Oligopolistic Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 125-141, 03.
  13. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site," Working Papers 2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  14. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  15. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
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Cited by:
  1. Zimmerman, Paul R., 2010. "On the sustainability of collusion in Bertrand supergames with discrete pricing and nonlinear demand," MPRA Paper 20249, University Library of Munich, Germany.

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