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A note on cartel stability and endogenous sequencing with tacit collusion

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Author Info
Marc Escrihuela Villar (Universitat de les Illes Balears)
Abstract

We use the concept of cartel stability defined by d'Aspremont et al. (1983) to obtain that the sequence of play between the cartel and the fringe affects cartel stability in a quantity-competition setting where firms tacitly collude. We also prove that an endogenous sequence of play between a cartel and a fringe depends on the discount factor. If the discount factor is large enough, the cartel and the fringe simultaneously choose quantities since the stable cartel may contain more firms under simultaneous play than under cartel leadership. This is due to the fact that under simultaneous play cartel firms have incentives to participate in the cartel because otherwise no collusion is possible.

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Paper provided by Universitat de les Illes Balears, Departament d'Economía Aplicada in its series DEA Working Papers with number 29.

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Date of creation: 2008
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Handle: RePEc:ubi:deawps:29

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Related research
Keywords: Collusion; Cartel stability; Stackelberg leadership;

Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

References listed on IDEAS
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  1. Albaek, Svend, 1990. "Stackelberg Leadership as a Natural Solution under Cost Uncertainty," Journal of Industrial Economics, Blackwell Publishing, vol. 38(3), pages 335-47, March. [Downloadable!] (restricted)
  2. Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, vol. 80(1), pages 69-82, March.
  3. Sylvie Thoron, 1998. "Formation of a Coalition-Proof Stable Cartel," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 63-76, February.
  4. Margaret C. Levenstein & Valerie Y. Suslow, 2006. "What Determines Cartel Success?," Journal of Economic Literature, American Economic Association, vol. 44(1), pages 43-95, March. [Downloadable!] (restricted)
  5. Morasch, Karl, 2000. "Strategic alliances as Stackelberg cartels - concept and equilibrium alliance structure," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 257-282, February. [Downloadable!] (restricted)
  6. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February. [Downloadable!] (restricted)
  7. Claude, et al d'Aspremont, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February. [Downloadable!] (restricted)
  8. Donsimoni, Marie-Paule & Economides, Nicholas S & Polemarchakis, Herakles M, 1986. "Stable Cartels," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 317-27, June. [Downloadable!] (restricted)
  9. Davidson, Carl & Deneckere, Raymond, 1984. "Horizontal mergers and collusive behavior," International Journal of Industrial Organization, Elsevier, vol. 2(2), pages 117-132, June. [Downloadable!] (restricted)
  10. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July. [Downloadable!] (restricted)
  11. Andrea Lofaro, 1999. "When imperfect collusion is profitable," Journal of Economics, Springer, vol. 70(3), pages 235-259, October. [Downloadable!] (restricted)
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