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Cartel size and collusive stability with non-capitalistic players

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  • Delbono, Flavio
  • Lambertini, Luca

Abstract

A well established belief both in the game-theoretic IO and in policy debates is that market concentration facilitates collusion. We show that this piece of conventional wisdom relies upon the assumption of profit-seeking behaviour, for it may be reversed when firms pursue other plausible goals. To illustrate our intuition, we investigate the incentives to tacit collusion in an industry formed by labour-managed (LM) enterprises. We characterise the perfect equilibrium of a supergame in which LM firms play an infinitely repeated Cournot game under grim trigger strategies. We show that the critical threshold of the discount factor above which collusion is stable (i) is lower in the LM industry than in the capitalistic one; (ii) monotonically decreases with the number of firms.

Suggested Citation

  • Delbono, Flavio & Lambertini, Luca, 2014. "Cartel size and collusive stability with non-capitalistic players," Economics Letters, Elsevier, vol. 125(2), pages 156-159.
    • Handle: RePEc:eee:ecolet:v:125:y:2014:i:2:p:156-159
    DOI: 10.1016/j.econlet.2014.08.036
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    1. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    2. Flavio DELBONO & Carlo REGGIANI, 2013. "Cooperative Firms And The Crisis: Evidence From Some Italian Mixed Oligopolies," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 84(4), pages 383-397, December.
    3. Hill, Martyn & Waterson, Michael, 1983. "Labor-managed Cournot oligopoly and industry output," Journal of Comparative Economics, Elsevier, vol. 7(1), pages 43-51, March.
    4. Delbono, Flavio & Rossini, Gianpaolo, 1992. "Competition policy vs horizontal merger with public, entrepreneurial, and labor-managed firms," Journal of Comparative Economics, Elsevier, vol. 16(2), pages 226-240, June.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    6. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
    7. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
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    Cited by:

    1. Swoboda, Sandra Maria, 2017. "Einfluss ausgewählter Determinanten auf die Kartellbildung und -stabilität: Eine Literaturstudie," Arbeitspapiere 176, University of Münster, Institute for Cooperatives.
    2. Ying Fan & Charles Ka Yui Leung & Zan Yang, 2022. "Financial conditions, local competition, and local market leaders: The case of real estate developers," Pacific Economic Review, Wiley Blackwell, vol. 27(2), pages 131-193, May.
    3. Guido Caselli & Michele Costa & Flavio Delbono, 2022. "What do cooperative firms maximize, if at all? Evidence from Emilia‐Romagna in the pre‐Covid decade," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 821-847, December.
    4. Delbono, Flavio & Lanzi, Diego & Reggiani, Carlo, 2023. "Workers’ firm in mixed duopoly," Economic Modelling, Elsevier, vol. 122(C).
    5. Flavio Delbono, 2016. "Le cooperative di produzione e la stabilit? occupazionale," QUADERNI DI ECONOMIA DEL LAVORO, FrancoAngeli Editore, vol. 2016(105), pages 166-177.
    6. Filipa Mota & João Correia-da-Silva & Joana Pinho, 2023. "Public–Private Collusion," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(4), pages 393-417, June.
    7. Flavio Delbono & Diego Lanzi & Carlo Reggiani, 2022. "Beyond Illyria: Workers' Firm in Mixed Oligopoly," Working Papers wp1170, Dipartimento Scienze Economiche, Universita' di Bologna.

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    More about this item

    Keywords

    Cartel stability; Labour-managed firms; Repeated game;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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