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Does cooperation in manufactoring foster tacit collusion

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  • Neubecker, Leslie
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    Abstract

    This paper analyzes the effect of cooperation in manufacturing on firms' inclination to collude in the market. Compared to non-cooperation in manufacturing, coordination of the investments in production yields a higher competitive profit. If firms intensify cooperation and produce in a joint plant, this profit is still higher due to lower investment costs. Since firms return to competition after a defection from the collusive agreement, a high competitive profit implies a weak punishment. Collusion is thus more difficult, the closer firms cooperate in manufacturing. Moreover, given competition or collusion in the market, joint production yields the highest profit and welfare. --

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    Bibliographic Info

    Paper provided by University of Tübingen, School of Business and Economics in its series Tübinger Diskussionsbeiträge with number 261.

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    Date of creation: 2003
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    Handle: RePEc:zbw:tuedps:261

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    Keywords: ): Manufacturing; Cooperative production; Dynamic competition; Collusion;

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    15. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
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