Cartel Pricing Dynamics, Price Wars and Cartel Breakdown
AbstractThis paper gives an unified explanation of some of the most widely known facts of the cartel literature: prices gradually rise, then remain constant, there can be price wars and some cartels break down. In this model consumers are loss averse and efficiency of a competitive fringe is not publicly observable. In the best collusive equilibrium, the price expectation can be so low that loss aversion makes consumers not buy at the maximal collusive price: firms then set a lower price that rises in time with consumers’ expectations. This increasing price path is bounded from above by the presence of the fringe. If the fringe sets a low price during a sufficient number of periods, there can be price wars and collusion can eventually break down.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-309.
Date of creation: May 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-BEC-2012-05-29 (Business Economics)
- NEP-COM-2012-05-29 (Industrial Competition)
- NEP-HME-2012-05-29 (Heterodox Microeconomics)
- NEP-IND-2012-05-29 (Industrial Organization)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
- David Gill & Victoria Prowse, 2011.
"A Structural Analysis of Disappointment Aversion in a Real Effort Competition,"
2011001, University of Oxford, Nuffield College.
- David Gill & Victoria Prowse, 2012. "A Structural Analysis of Disappointment Aversion in a Real Effort Competition," American Economic Review, American Economic Association, vol. 102(1), pages 469-503, February.
- Gill, David & Prowse, Victoria L., 2009. "A Structural Analysis of Disappointment Aversion in a Real Effort Competition," IZA Discussion Papers 4536, Institute for the Study of Labor (IZA).
- Gill, David & Prowse, Victoria Liza, 2010. "A structural analysis of disappointment aversion in a real effort competition," Discussion Paper Series In Economics And Econometrics 1006, Economics Division, School of Social Sciences, University of Southampton.
- Victoria Prowse & David Gill, 2009. "A Structural Analysis of Disappointment Aversion in a Real Effort Competition," Economics Series Working Papers 448, University of Oxford, Department of Economics.
- Haigh, Michael S. & List, John A., 2002.
"Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis,"
28554, University of Maryland, Department of Agricultural and Resource Economics.
- Michael S. Haigh & John A. List, 2005. "Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis," Journal of Finance, American Finance Association, vol. 60(1), pages 523-534, 02.
- Michael Haigh & John List, 2005. "Do professional traders exhibit myopic loss aversion? An experimental analysis," Artefactual Field Experiments 00052, The Field Experiments Website.
- Botond Kőszegi & Paul Heidhues, 2008. "Competition and Price Variation When Consumers Are Loss Averse," American Economic Review, American Economic Association, vol. 98(4), pages 1245-68, September.
- Gill, David & Stone, Rebecca, 2010.
"Fairness and Desert in Tournaments,"
21322, University Library of Munich, Germany.
- Gill, David & Stone, Rebecca, 2009. "Fairness and desert in tournaments," Discussion Paper Series In Economics And Econometrics 0903, Economics Division, School of Social Sciences, University of Southampton.
- David Gill & Rebecca Stone, 2006. "Fairness and Desert in Tournaments," Economics Series Working Papers 279, University of Oxford, Department of Economics.
- John M. Connor, 1998. "What Can We Learn From The Adm Global Price Conspiracies?," Working Papers 98-14, Purdue University, College of Agriculture, Department of Agricultural Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.