Welfare-Enhancing Collusion in the Presence of a Competitive Fringe
AbstractFollowing the structure of many commodity markets, we consider a few large firms and a competitive fringe of many small suppliers choosing quantities in an infinite-horizon setting subject to demand shocks. We show that a collusive agreement among the large firms may not only bring an output contraction but also an output expansion (relative to the noncollusive output level). The latter occurs during booms, when the fringe’s market share is more important, and is due to the strategic substitutability of quantities (we will never observe an output-expanding collusion in a price-setting game). In addition and depending on the fringe’s market share the time at which maximal collusion is most difficult to sustain can be either at booms or recessions.
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Bibliographic InfoPaper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 298.
Date of creation: 2005
Date of revision:
Other versions of this item:
- Juan-Pablo Montero & Juan Ignacio Guzmán, 2005. "Welfare-enhancing collusion in the presence of a competitive fringe," Working Papers 0511, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
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