Cartel stability and profits under different reactions to entry in markets with growing demand
AbstractWe study sustainability of collusion with optimal penal codes, in markets where demand growth may trigger the entry of a new firm. In contrast with grim trigger strategies, optimal penal codes make collusion easier to sustain before entry than after. We compare different reactions of the incumbents to entry in terms of: sustainability of collusion, incumbent’s profits, entrant’s profits, consumer surplus and social welfare. Surprisingly, the incumbent firms may prefer competition to collusion.
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Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 487.
Length: 30 pages
Date of creation: Mar 2013
Date of revision:
Collusion; Demand growth; Optimal penal codes; Reactions to entry.;
Find related papers by JEL classification:
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-13 (All new papers)
- NEP-BEC-2013-04-13 (Business Economics)
- NEP-COM-2013-04-13 (Industrial Competition)
- NEP-LAW-2013-04-13 (Law & Economics)
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