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On the profitability of collusion in location games

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  • Huck, Steffen
  • Knoblauch, Vicki
  • Müller, Wieland

Abstract

In this note we take a first step towards the analysis of collusion in markets with spatial competition, focusing on the case of pure location choices. We find that collusion can only be profitable if a coalition contains more than half of all players. This result holds for location games played in k-dimensional Euclidean space as long as consumers are distributed via atomless density functions. For competition on the unit interval, unit circle, and unit square we also derive sufficient conditions for collusion to be profitable. -- Wir untersuchen Kollusion in Märkten, in denen die einzige strategische Variable der Akteure ihre Ortswahl ist. Für Spiele in k-dimensionalen Euklidischen Räumen mit massepunktfreien Verteilungen zeigen wir, dass Kollusion nur profitabel sein kann, wenn wenigstens die Hälfte aller Akteure kolludieren. Für Wettbewerb auf dem Einheitsintervall, dem Einheitskreis und dem Einheitsquadrat etablieren wir hinreichende Bedingungen für die Profitabilität von Kollusion.

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Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number FS IV 02-22.

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Date of creation: 2002
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Handle: RePEc:zbw:wzbmpg:fsiv0222

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  1. Simon, Leo K, 1987. "Games with Discontinuous Payoffs," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 569-97, October.
  2. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 27-41, January.
  3. Aoyagi, Masaki & Okabe, Atsuyuki, 1993. "Spatial competition of firms in a two-dimensional bounded market," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 259-289, April.
  4. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
  5. A Okabe & A Suzuki, 1987. "Stability of spatial competition for a large number of firms on a bounded two-dimensional space," Environment and Planning A, Pion Ltd, London, vol. 19(8), pages 1067-1082, August.
  6. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  7. Shaked, A, 1975. "Non-existence of Equilibrium for the Two-dimensional Three-firms Location Problem," Review of Economic Studies, Wiley Blackwell, vol. 42(1), pages 51-56, January.
  8. Eaton, B Curtis & Lipsey, Richard G, 1975. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Review of Economic Studies, Wiley Blackwell, vol. 42(1), pages 27-49, January.
  9. Knoblauch, Vicki, 2002. "An Easy Proof That a Square Lattice Is an Equilibrium for Spatial Competition in the Plane," Journal of Urban Economics, Elsevier, vol. 51(1), pages 46-53, January.
  10. Shaked, A, 1982. "Existence and Computation of Mixed Strategy Nash Equilibrium for 3-Firms Location Problem," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 93-96, September.
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Cited by:
  1. Daniel Strobach, 2006. "Competition between airports with an application to the state of Baden-Württemberg," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 272/2006, Department of Economics, University of Hohenheim, Germany.
  2. Steffen Huck & Kai A. Konrad & Wieland Müller, 2005. "Merger without Cost Advantages," CESifo Working Paper Series 1461, CESifo Group Munich.

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