Anticipated Collusion and Excess Capacity
AbstractThis paper examines an industry where output is determined collusively, with output shares allocated on the basis of relative capacity. Capacity is chosen non-cooperatively, providing an apparently clear incentive for firms to install excess capacity. Although excess capacity equilibria (ECE) may arise, capacity constrained equilibria (CCE) will occur from some parameter values. However, if an ECE occurs, firms will be strictly worse off under this partial cooperation than in the fully non-cooperative setting: partial collusion does more harm than good. The Stackleberg solution coincides with the symmetric Nash equilibrium in the ECE. Entry deterrence is also considered.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 530.
Date of creation: 1983
Date of revision:
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- Carl Davidson & Raymond Deneckere, 1984.
"Excess Capacity and Collusion,"
675, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Lars-Hendrik R�ller & Frode Steen, 2006. "On the Workings of a Cartel: Evidence from the Norwegian Cement Industry," American Economic Review, American Economic Association, vol. 96(1), pages 321-338, March.
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