Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges
AbstractIn many capacity-intensive industries (e.g. electricity, bandwidth), exchanges allow firms to buy and sell wholesale capacity before selling on the retail market. This allows firms to smooth demand shocks, but it also raises suspicions that exchanges facilitate tacit collusion to limit capacity investment. This paper models investment and exchange in a one-shot game and in a repeated game with tacit collusion. It finds that the presence of the exchange does not reduce total capacity investment, and thus does not raise consumer prices. In fact, the exchange may make it more difficult to sustain tacit collusion.
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Bibliographic InfoPaper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2006-002.
Length: 22 pages
Date of creation: Jan 2006
Date of revision:
capacity investment; capacity exchanges; business to business exchanges; tacit collusion;
Other versions of this item:
- Hogendorn Christian, 2007. "Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-16, July.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-25 (All new papers)
- NEP-COM-2006-03-25 (Industrial Competition)
- NEP-FMK-2006-03-25 (Financial Markets)
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.:
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