Endogenous Cartel Formation with Heterogeneous Firms
AbstractIn the context of an infinitely repeated capacity-constrained price game, we endogenize the composition of a cartel when .rms are heterogeneous in their capacities. When .rms are sufficiently patient, there exists a stable cartel involving the largest .rms. A .rm with sufficiently small capacity is not a member of any stable cartel. When a cartel is not all-inclusive, colluding firms set a price that serves as an umbrella with non-cartel members pricing below it and producing at capacity. Contrary to previous work, our results suggest that the most severe coordinated e¡èects may come from mergers involving moderate-sized firms, rather than the largest or smallest firms.
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Bibliographic InfoPaper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 544.
Date of creation: Sep 2008
Date of revision: Nov 2008
Other versions of this item:
- Iwan Bos & Joseph E. Harrington, Jr, 2010. "Endogenous cartel formation with heterogeneous firms," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 92-117.
- NEP-ALL-2008-09-29 (All new papers)
- NEP-COM-2008-09-29 (Industrial Competition)
- NEP-MIC-2008-09-29 (Microeconomics)
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