IDEAS home Printed from https://ideas.repec.org/a/bla/buecrs/v70y2018i3p298-311.html
   My bibliography  Save this article

A Spatial Model Of Cartel Stability: The Influence Of Production Cost Convexity

Author

Listed:
  • Kai Andree
  • John S. Heywood
  • Mike Schwan
  • Zheng Wang

Abstract

We uniquely introduce convex production costs into a cartel model involving spatial price discrimination. We demonstrate that greater convexity improves cartel stability and that for sufficient convexity first best locations will be adopted. We show that allowing locations to vary over the game reduces cartel stability but that greater convexity continues to improve that stability. Moreover, when the degree of convexity does not support the first best collusive locations, other collusive locations exist that require less stability and these may either increase or decrease social welfare relative to competition. Critically, these locations that require less stability are more dispersed in sharp contrast to the known result assuming linear production costs.

Suggested Citation

  • Kai Andree & John S. Heywood & Mike Schwan & Zheng Wang, 2018. "A Spatial Model Of Cartel Stability: The Influence Of Production Cost Convexity," Bulletin of Economic Research, Wiley Blackwell, vol. 70(3), pages 298-311, July.
  • Handle: RePEc:bla:buecrs:v:70:y:2018:i:3:p:298-311
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/boer.12149
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stefano Colombo, 2012. "Collusion in two models of spatial competition with quantity-setting firms," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 48(1), pages 45-69, February.
    2. Ramcharran, Harri, 2011. "The pharmaceutical industry of Puerto Rico: Ramifications of global competition," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 395-406, May.
    3. Chang, Myong-Hun, 1992. "Intertemporal Product Choice and Its Effects on Collusive Firm Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 773-793, November.
    4. Toshihiro Matsumura & Noriaki Matsushima, 2005. "Cartel Stability in a Delivered Pricing Oligopoly," Journal of Economics, Springer, vol. 86(3), pages 259-292, December.
    5. James W. Friedman & Jacques-Francois Thisse, 1993. "Partial Collusion Fosters Minimum Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 631-645, Winter.
    6. Hackner, Jonas, 1995. "Endogenous product design in an infinitely repeated game," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 277-299.
    7. John Heywood & Zheng Wang, 2015. "How to license a transport innovation," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(2), pages 485-500, December.
    8. John A. List & Michael K. Price, 2005. "Conspiraces and Secret Price Discounts in the Marketplace: Evidence from Field Experiments," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 700-717, Autumn.
    9. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    10. Harrington, Joseph E. & Hüschelrath, Kai & Laitenberger, Ulrich & Smuda, Florian, 2015. "The discontent cartel member and cartel collapse: The case of the German cement cartel," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 106-119.
    11. Carlton, Dennis W, 1983. "A Reexamination of Delivered Pricing Systems," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 51-70, April.
    12. Greenhut, Melvin L, 1981. "Spatial Pricing in the United States, West Germany and Japan," Economica, London School of Economics and Political Science, vol. 48(189), pages 79-86, February.
    13. Assaf, A., 2010. "Bootstrapped scale efficiency measures of UK airports," Journal of Air Transport Management, Elsevier, vol. 16(1), pages 42-44.
    14. repec:kap:jeczfn:v:76:y:2002:i:1:d:10.1007_s712-002-8220-0 is not listed on IDEAS
    15. Colombo, Stefano, 2010. "Product differentiation, price discrimination and collusion," Research in Economics, Elsevier, vol. 64(1), pages 18-27, March.
    16. Stefano Colombo, 2016. "Mixed oligopolies and collusion," Journal of Economics, Springer, vol. 118(2), pages 167-184, June.
    17. Kai Andree & Mike Schwan, 2012. "Collusive Market Sharing with Spatial Competition," Economics Bulletin, AccessEcon, vol. 32(4), pages 3357-3364.
    18. Pedro Posada & Odd Rune Straume, 2004. "Merger, Partial Collusion and Relocation," Journal of Economics, Springer, vol. 83(3), pages 243-265, December.
    19. Brad R. Humphreys & Jane E. Ruseski, 2009. "Monitoring Cartel Behavior and Stability: Evidence from NCAA Football," Southern Economic Journal, Southern Economic Association, vol. 75(3), pages 720-735, January.
    20. Hurter, Arthur Jr & Lederer, Phillip J., 1985. "Spatial duopoly with discriminatory pricing," Regional Science and Urban Economics, Elsevier, vol. 15(4), pages 541-553, November.
    21. Wen-Jen Hsieh, 1995. "Test of variable output and scale elasticities for 20 US manufacturing industries," Applied Economics Letters, Taylor & Francis Journals, vol. 2(8), pages 284-287.
    22. John Greenhut & M. L. Greenhut & Sheng-yung Li, 1980. "Spatial Pricing Patterns in the United States," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 329-350.
    23. Huang, Tai-Hsin & Wang, Mei-Hui, 2001. "Estimating Scale and Scope Economies with Fourier Flexible Functional Form--Evidence from Taiwan's Banking Industry," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 213-231, June.
    24. Gupta, Barnali, 1994. "Competitive spatial price discrimination with strictly convex production costs," Regional Science and Urban Economics, Elsevier, vol. 24(2), pages 265-272, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:spr:lsprsc:v:11:y:2018:i:2:d:10.1007_s12076-018-0213-6 is not listed on IDEAS

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:buecrs:v:70:y:2018:i:3:p:298-311. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0307-3378 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.