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Exchange Agreements Facilitate Collusion

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  • Hans-Theo Normann

Abstract

A duopoly model with quantity competition is analyzed in which firms collude in two markets. There is specialization in production in order to promote efficiency. Firms may then either exclusively market one good each, or they may agree to exchange goods and cross-supply a part of the production to the other firm. It is shown that, compared to specialization in marketing, positive exchanges of goods relax the incentive constraints that limit the extent of collusion. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2001.

Suggested Citation

  • Hans-Theo Normann, 2001. "Exchange Agreements Facilitate Collusion," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 113-125, May.
  • Handle: RePEc:bla:germec:v:2:y:2001:i:2:p:113-125
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    References listed on IDEAS

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    1. Morton I. Kamien & Lode Li & Dov Samet, 1989. "Bertrand Competition with Subcontracting," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 553-567, Winter.
    2. Christian Schultz, 2002. "Export Cartels and Domestic Markets," Journal of Industry, Competition and Trade, Springer, vol. 2(3), pages 233-246, September.
    3. Schmidt, Klaus M. & Schnitzer, Monika, 1995. "The interaction of explicit and implicit contracts," Economics Letters, Elsevier, vol. 48(2), pages 193-199, May.
    4. Pio Baake & Jörg Oechssler & Christoph Schenk, 1999. "Explaining cross-supplies," Journal of Economics, Springer, vol. 70(1), pages 37-60, February.
    5. 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.
    6. Allen, Beth, 1992. "Price and quantity competition in homogeneous duopoly markets," Economics Letters, Elsevier, vol. 38(4), pages 417-422, April.
    7. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    8. Corwin D. Edwards, 1955. "Conglomerate Bigness as a Source of Power," NBER Chapters,in: Business Concentration and Price Policy, pages 331-359 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Normann, Hans-Theo & Rösch, Jürgen & Schultz, Luis Manuel, 2015. "Do buyer groups facilitate collusion?," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 72-84.

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