The textbook view that cartels increase industry profits and lower consumer welfare ignores the effects of competition in other activities. A revisionist view shows that, when cartel members compete in other activities, i.e., when they semicollude, the cartel members may be worse-off and consumers better-off. Using a two-stage model in which the nonproduction activity is R&D and is subject to technological spillovers, the authors show that both the traditional and revisionist views can be wrong, that consumers and producers can both be made worse-off, or both better-off, by a semicollusive production cartel. Copyright 1999 by Blackwell Publishing Ltd
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Volume (Year): 47 (1999)
Issue (Month): 2 (June)
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