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Cartel pricing dynamics and discount factor uncertainty

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  • Manganelli, Anton-Giulio

Abstract

The gradual rise of prices is reported in vast evidence of the cartel literature. This paper characterizes cartel pricing dynamics in a duopoly when the discount factor of one firm is private information. Raising prices gradually helps the common information firm to reduce the incentives to deviate of the private information firm and increases the probability that both firms get higher continuation profits. There exist parameter sets where it is optimal for both firms to raise prices gradually instead of setting the maximal price immediately.

Suggested Citation

  • Manganelli, Anton-Giulio, 2023. "Cartel pricing dynamics and discount factor uncertainty," Finance Research Letters, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323004221
    DOI: 10.1016/j.frl.2023.104050
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    References listed on IDEAS

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    1. Joseph E. Harrington, 2005. "Optimal Cartel Pricing In The Presence Of An Antitrust Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 145-169, February.
    2. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 651-673, Winter.
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    4. John Connor, 2001. "“Our Customers Are Our Enemies”: The Lysine Cartel of 1992–1995," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(1), pages 5-21, February.
    5. Manganelli, Anton-Giulio, 2017. "Cartel pricing dynamics with reference-dependent preferences," Economics Letters, Elsevier, vol. 150(C), pages 91-94.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cartel pricing dynamics; Private information; Discount factor;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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