In 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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Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number
544.
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Donsimoni, Marie-Paule & Economides, Nicholas S & Polemarchakis, Herakles M, 1986.
"Stable Cartels,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 317-27, June.
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