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Optimal timing of defections from price-setting cartels in volatile markets

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  • Shakill Hassan

Abstract

We model cartel defection in markets with stochastic demand fluctuations as an investment timing problem. We show that (i) the optimal timing of cartel defection is pro-cyclical, suggesting higher probability of competitive pricing during booms; and (ii) the defection trigger is a positive function of demand variability, and larger than its deterministic demand counterpart, implying […]

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  • Shakill Hassan, 2005. "Optimal timing of defections from price-setting cartels in volatile markets," Working Papers 003, Economic Research Southern Africa.
    • Handle: RePEc:rza:wpaper:003
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