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Cartel stability and profits under different reactions to entry in markets with growing demand

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Author Info

  • João Correia-da-Silva

    ()
    (CEF.UP e Faculdade de Economia do Porto.)

  • Joana Pinho

    ()
    (CEF.UP e Faculdade de Economia do Porto.)

  • Hélder Vasconcelos

    ()
    (Autoridade Nacional de Comunicações (ANACOM). CEF.UP e Faculdade de Economia do Porto.)

Abstract

We 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 Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 487.

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Length: 30 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:por:fepwps:487

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Keywords: Collusion; Demand growth; Optimal penal codes; Reactions to entry.;

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  1. Márcia Oliveira & Dalila B. M. M. Fontes & Teresa Pereira, 2013. "Multicriteria Decision Making: A Case Study in the Automobile Industry," FEP Working Papers 483, Universidade do Porto, Faculdade de Economia do Porto.
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  5. Paula Gracinda Santos & Ana Paula Ribeiro & Vitor Manuel Carvalho, 2013. "Export-led growth in Europe: Where and what to export?," FEP Working Papers 479, Universidade do Porto, Faculdade de Economia do Porto.
  6. Elena Sochirca & Pedro Mazeda Gil & Oscar Afonso, 2013. "Technology Structure and Skill Structure: Costly Investment and Complementarity Effects Quantification," FEP Working Papers 478, Universidade do Porto, Faculdade de Economia do Porto.
  7. Carlos Seixas & António Brandão & Manuel Luís Costa, 2013. "Policy Choices by an Incumbent - A Case with Down-Up Problem, Bias Beliefs and Retrospective Voting," FEP Working Papers 485, Universidade do Porto, Faculdade de Economia do Porto.
  8. Hélder Ferreira & Aurora A.C. Teixeira, 2013. "‘Welcome to the experience economy’: assessing the influence of customer experience literature through bibliometric analysis," FEP Working Papers 481, Universidade do Porto, Faculdade de Economia do Porto.
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Cited by:
  1. António Brandão & Joana Pinho & Hélder Vasconcelos, 2013. "Asymmetric collusion with growing demand," FEP Working Papers 510, Universidade do Porto, Faculdade de Economia do Porto.

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