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Colluding through Suppliers

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Abstract

In a dynamic game between N retailers and a large number of suppliers, I show that inefficient contracting emerges as a mechanism to implement collusion among retailers, building on the natural ‘complementarity’ between retail and wholesale prices. When efficient collusion is not sustainable, this complementarity allows retailers to rely on inefficient input supply, entailing double marginalization and negative franchise fees, to squeeze the wedge between collusive and deviation profits. I also study the role of communication on the equilibrium outcomes of games where retailers have the initiative. It turns out that communication is indeed fundamental to strengthen cartels' sustainability, although generating efficiency losses.

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 224.

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Date of creation: 24 Apr 2009
Date of revision: 08 Apr 2010
Publication status: Published in RAND Journal of Economics, 2012, Vol. 43, 492-513.
Handle: RePEc:sef:csefwp:224

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Related research

Keywords: Bertrand competition; double marginalization; collusion; competing hierarchies.;

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Cited by:
  1. Chris Doyle & Martijn A. Han, 2012. "Cartelization Through Buyer Groups," SFB 649 Discussion Papers SFB649DP2012-059, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Cheng-Feng Cheng, 2012. "Evaluate the Effectiveness of Manager Compensation," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 11(1), pages 25-44, June.
  3. Chrysovalantou Milliou & Apostolis Pavlou, 2014. "Foreign Direct Investment Modes and Local Backward Linkages," CESifo Working Paper Series 4623, CESifo Group Munich.

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