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Localized Competition, Multimarket Operation and Collusive Behavior

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  • Frank Verboben
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    Abstract

    This paper studies collusive behavior in a repeated oligopoly model with localized competition. Private information about the rivals' past actions naturally arises from this product market structure. The resulting communication problems imply that firms should adopt strategies with sufficiently lenient punishments. Infinite grim punishments are too severe for large discount factors. The standard stick-and-carrot punishments from the perfect public information model are too severe for all discount factors. Modified stickand- carrot punishments can be used, though for a smaller range of discount factors than the standard stick-and-carrot punishments under public information. ZUSAMMENFASSUNG - (Lokaler Wettbewerb, Multimarkt-Strategien und kollusives Verhalten) In diesem Beitrag wird das kollusive Verhalten in einem Oligopolmodell mit lokalem Wettbewerb untersucht. Private Information über die Aktionen des Konkurrenten resultieren normalerweise aus der Produkt-Marktstruktur. Das daraus folgende Kommunikationsproblem bedeutet, daß Unternehmen jene Strategien anwenden sollten, die moderat im Hinblick auf Bestrafung sind. Uneingeschränkt harte Strafen sind beim Vorliegen hoher Abzinsungsfaktoren zu schwerwiegend. Die übliche "Zuckerbrot und Peitsche"- Bestrafung des Modells mit vollständig öffentlicher Information sind für alle Abzinsungsfaktoren zu hart. Eine modifizierte "Zuckerbrot und Peitsche"-Bestrafung kann verwendet werden, jedoch nur für einen engeren Bereich von Abzinsungsfaktoren als dies für die Standard "Zuckerbrot und Peitsche"-Bestrafung gilt.

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    Bibliographic Info

    Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 97-03.

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    Length: 41 pages
    Date of creation: Jan 1997
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    Publication status: Published in the International Economic Review , Vol. 39(2), May 1998, pp. 371-398.
    Handle: RePEc:wzb:wzebiv:fsiv97-3

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    1. 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.
    2. Tom Ross, 1990. "Cartel Stability And Product Differentiation," Carleton Industrial Organization Research Unit (CIORU) 90-04, Carleton University, Department of Economics.
    3. FRIEDMAN, James W. & THISSE, Jacques-François, . "Partial collusion fosters minimum product differentiation," CORE Discussion Papers RP -1070, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
    5. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. Michihiro Kandori & Hitoshi Matsushima, 1997. "Private observation and Communication and Collusion," Levine's Working Paper Archive 1256, David K. Levine.
    8. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
    9. Fraas, Arthur G & Greer, Douglas F, 1977. "Market Structure and Price Collusion: An Empirical Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 26(1), pages 21-44, September.
    10. Evans, William N & Kessides, Ioannis N, 1994. "Living by the "Golden Rule": Multimarket Contact in the U.S. Airline Industry," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 341-66, May.
    11. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
    12. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    13. Feenstra, Robert C & Levinsohn, James A, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 19-52, January.
    14. Fudenberg, Drew & Levine, David K., 1991. "An approximate folk theorem with imperfect private information," Journal of Economic Theory, Elsevier, vol. 54(1), pages 26-47, June.
    15. Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 13-38, April.
    16. Anderson, Simon P & de Palma, Andre & Thisse, Jacques-Francois, 1989. "Demand for Differentiated Products, Discrete Choice Models, and the Characteristics Approach," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 21-35, January.
    17. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
    18. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
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