Delivered pricing and the impact of spatial differentiation on cartel stability
This paper analyzes the impact of spatial differentiation on the sustainability of collusion on delivered prices. It shows that the choice of the punishment mechanism that enforces collusion is crucial for determining whether differentiation facilitates cartel pricing or not. If punishments are optimal, then differentiation tends to facilitate collusion. Optimal punishments impose minmax profits on deviators independently of the degree of differentiation. A high degree of differentiation then renders deviations less profitable, since it makes business stealing more costly but does not affect the deviator's punishment profits. Depending on the transport cost technology, excessive differentiation may have a countervailing effect, however, because it also implies high transport costs for the cartel. If collusion is sustained by standard grim trigger punishments instead, then collusion may be easiest for minimal differentiation. The reason is that competitive and thus grim trigger punishment profits are higher the higher the degree of differentiation.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
- Toshihiro Matsumura & Noriaki Matsushima, 2005. "Cartel Stability in a Delivered Pricing Oligopoly," Journal of Economics, Springer, vol. 86(3), pages 259-292, December.
- Hackner, Jonas, 1995. "Endogenous product design in an infinitely repeated game," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 277-299.
- Hamilton, Jonathan H. & Thisse, Jacques-Francois & Weskamp, Anita, 1989.
"Spatial discrimination : Bertrand vs. Cournot in a model of location choice,"
Regional Science and Urban Economics,
Elsevier, vol. 19(1), pages 87-102, February.
- HAMILTON, Jonathan H. & THISSE, Jacques-François & WESKAMP, Anita, "undated". "Spatial discrimination. Bertrand vs. Cournot in a model of location choice," CORE Discussion Papers RP 846, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Rothschild, R., 1992. "On the sustainability of collusion in differentiated duopolies," Economics Letters, Elsevier, vol. 40(1), pages 33-37, September.
- Ross, Thomas W., 1992. "Cartel stability and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 1-13, March.
- Tom Ross, 1990. "Cartel Stability And Product Differentiation," Carleton Industrial Organization Research Unit (CIORU) 90-04, Carleton University, Department of Economics.
- Thisse, Jacques-Francois & Vives, Xavier, 1992. "Basing Point Pricing: Competition versus Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 249-260, September.
- THISSE, Jacques-François & VIVES, Xavier, "undated". "Basing point pricing: Competition versus collusion," CORE Discussion Papers RP 1003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Thisse, J-F. & Vives, X., 1990. "Basing Point Pricing: Competition Versus Collusion," UFAE and IAE Working Papers 136-90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-396, March.
- Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
- Jeanine Thal, 2005. "Optimal Collusion under Cost Asymmetry," Working Papers 2005-36, Center for Research in Economics and Statistics.
- Miklos-Thal, Jeanine, 2008. "Optimal Collusion under Cost Asymmetry," MPRA Paper 11044, University Library of Munich, Germany.
- Hackner, Jonas, 1996. "Optimal symmetric punishments in a Bertrand differentiated products duopoly," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 611-630, July.
- Tay, Abigail, 2003. " Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 786-814, Winter.
- 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.
- Lambertini, Luca & Poddar, Sougata & Sasaki, Dan, 2002. "Research joint ventures, product differentiation, and price collusion," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 829-854, June.
- Chang, Myong-Hun, 1991. "The effects of product differentiation on collusive pricing," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 453-469, September.
- 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.
- Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- 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.
- Maria Paz Espinosa, 1992. "Delivered Pricing, FOB Pricing, and Collusion in Spatial Markets," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 64-85, Spring.
- Michael A. Raith, 1996. "Product Differentiation, Uncertainty and the Stability of Collusion," STICERD - Economics of Industry Papers 16, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Raphael Thomadsen & Ki-Eun Rhee, 2007. "Costly Collusion in Differentiated Industries," Marketing Science, INFORMS, vol. 26(5), pages 660-665, 09-10.
- Wernerfelt, Birger, 1989. "Tacit collusion in differentiated cournot games," Economics Letters, Elsevier, vol. 29(4), pages 303-306. Full references (including those not matched with items on IDEAS)