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Cartel Stability and Product Differentiation: How Much Do the Size of the Cartel and the Size of the Industry Matter?

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Author Info
Posada, P.
Abstract

This article analyses how the degree of product differentiation, the size of the cartel and the size of the industry affect the stability of a cartel formed by any number of firms in an industry of any size. The paper considers a supergame-theoretic model to define stability. After a non-loyal member leaves the cartel, two possible reactions by the remaining members of the cartel are assumed. The first one is a trigger strategy where the cartel dissolves after one member has left and the second is one where the cartel keeps acting as a cartel with one member less.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/publications/twerp556.pdf
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Publisher Info
Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 556.

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Length: 29 pages
Date of creation: 2000
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Handle: RePEc:wrk:warwec:556

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Related research
Keywords: CARTELS ; SIZE OF INDUSTRY ; ECONOMIC MODELS;

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
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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  1. R. Rothschild, 1997. "Product differentiation and cartel stability: Chamberlin versus Hotelling," The Annals of Regional Science, Springer, vol. 31(3), pages 259-271. [Downloadable!] (restricted)
  2. Lambertini, Luca, 1996. "Cartel Stability and the Curvature of Market Demand," Bulletin of Economic Research, Blackwell Publishing, vol. 48(4), pages 329-34, October.
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  3. Chang, Myong-Hun, 1991. "The effects of product differentiation on collusive pricing," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 453-469, September. [Downloadable!] (restricted)
  4. Eaton, Curtis & Eswaran, Mukesh, 1998. "Endogenous Cartel Formation," Australian Economic Papers, Blackwell Publishing, vol. 37(1), pages 1-13, March. [Downloadable!] (restricted)
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  5. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Blackwell Publishing, vol. 38(113), pages 1-12, January. [Downloadable!] (restricted)
  6. 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)
  7. 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)
  8. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 155-177, June. [Downloadable!] (restricted)
  9. Rothschild, R., 1992. "On the sustainability of collusion in differentiated duopolies," Economics Letters, Elsevier, vol. 40(1), pages 33-37, September. [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. Donsimoni, Marie-Paule, 1985. "Stable heterogeneous cartels," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 451-467, December. [Downloadable!] (restricted)
  12. Ross, Thomas W., 1992. "Cartel stability and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 1-13, March. [Downloadable!] (restricted)
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