Welfare-enhancing collusion in the presence of a competitive fringe
AbstractFollowing the structure of many commodity markets, we consider a reduced number of large firms and a competitive fringe of many small suppliers choosing quantities in an infinitehorizon 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 non-collusive 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 collusion is most difficult to sustain can be either at booms or recessions.
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Bibliographic InfoPaper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0511.
Date of creation: Aug 2005
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- Juan Pablo Montero & Juan Ignacio GuzmÃ¡n, 2005. "Welfare-Enhancing Collusion in the Presence of a Competitive Fringe," Documentos de Trabajo 298, Instituto de Economia. Pontificia Universidad Católica de Chile..
- NEP-ALL-2006-08-12 (All new papers)
- NEP-COM-2006-08-12 (Industrial Competition)
- NEP-MIC-2006-08-12 (Microeconomics)
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- Bos Iwan & Pot Erik, 2010. "Welfare-Enhancing Hard Core Cartels," Research Memoranda 004, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
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