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Delivered pricing and the impact of spatial differentiation on cartel stability

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  • Miklós-Thal, Jeanine

Abstract

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.

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  • Miklós-Thal, Jeanine, 2008. "Delivered pricing and the impact of spatial differentiation on cartel stability," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1365-1380, November.
    • Handle: RePEc:eee:indorg:v:26:y:2008:i:6:p:1365-1380
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    Cited by:

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    2. Simon Loertscher & Leslie M. Marx, 2021. "Coordinated Effects in Merger Review," Journal of Law and Economics, University of Chicago Press, vol. 64(4), pages 705-744.
    3. Akinbosoye, Osayi & Bond, Eric W. & Syropoulos, Constantinos, 2012. "On the stability of multimarket collusion in price-setting supergames," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 253-264.
    4. Stefano Colombo, 2009. "The unidirectional Hotelling model with spatial price discrimination," Economics Bulletin, AccessEcon, vol. 29(4), pages 3031-3040.
    5. João Correia-da-Silva & Joana Pinho, 2011. "Costly horizontal differentiation," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(3), pages 165-188, December.
    6. Stefano Colombo, 2012. "Colluding on a Price Increase," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 365-371, December.
    7. Rasch, Alexander & Gössl, Florian, 2016. "The scope for collusion under different pricing schemes," VfS Annual Conference 2016 (Augsburg): Demographic Change 145759, Verein für Socialpolitik / German Economic Association.
    8. Colombo, Stefano, 2013. "Cartels in the unidirectional Hotelling model," Economic Modelling, Elsevier, vol. 31(C), pages 690-696.
    9. Stefano Colombo, 2011. "Pricing Policy and Partial Collusion," Journal of Industry, Competition and Trade, Springer, vol. 11(4), pages 325-349, December.
    10. Stefano Colombo, 2009. "Sustainability of collusion with imperfect price discrimination and inelastic demand functions," Economics Bulletin, AccessEcon, vol. 29(3), pages 1687-1694.
    11. Stefano Colombo, 2012. "Collusion in two models of spatial competition with quantity-setting firms," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 48(1), pages 45-69, February.
    12. Stefano Colombo, 2013. "Product Differentiation and Collusion Sustainability When Collusion Is Costly," Marketing Science, INFORMS, vol. 32(4), pages 669-674, July.

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