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Collusion and leadership

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  • Mouraviev, Igor
  • Rey, Patrick

Abstract

The paper explores the role of price or quantity leadership in facilitating collusion. It extends the standard analysis of tacit collusion by allowing firms to make their strategic choices either simultaneously or sequentially. It is shown that price leadership indeed facilitates collusion by making it easier to punish deviations by the leader. In case of pure Bertrand competition, price leadership restores the scope for (perfect) collusion in markets where collusion would not be sustainable otherwise. When firms face asymmetric costs or offer differentiated products, price leadership can also enhance the profitability of collusion—in case of asymmetric costs, the less efficient firm must act as the leader. Finally, such leadership is less effective in case of Cournot competition since, following an aggressive deviation by the leader, the follower would rather limit its own output, making it more difficult to punish the deviation. Still, quantity leadership may enhance collusion when it is already somewhat effective in a simultaneous move setting.

Suggested Citation

  • Mouraviev, Igor & Rey, Patrick, 2011. "Collusion and leadership," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 705-717.
  • Handle: RePEc:eee:indorg:v:29:y:2011:i:6:p:705-717
    DOI: 10.1016/j.ijindorg.2011.03.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets," Discussion Papers in Economics 16179, University of Munich, Department of Economics.
    2. Bertsch Christoph & Calcagno Claudio & Le Quement Mark, 2015. "Systematic Bailout Guarantees and Tacit Coordination," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(1), pages 1-36, January.
    3. Dijkstra, Peter T., 2014. "Price Leadership and Unequal Market Sharing," Research Report 14013-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    4. Boshoff, Willem & Frübing, Stefan & Hüschelrath, Kai, 2015. "Information exchange through non-binding advance price announcements: An antitrust analysis," ZEW Discussion Papers 15-060, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Aichele, Markus, 2013. "Abuse of forward contracts to semi-collude in volatile markets," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79755, Verein für Socialpolitik / German Economic Association.
    6. Dijkstra, Peter T., 2015. "Price leadership and unequal market sharing: Collusion in experimental markets," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 80-97.
    7. Juan F. Escobar & Gastón Llanes, 2015. "Cooperation Dynamic in Repeated Games of Adverse Selection," Documentos de Trabajo 311, Centro de Economía Aplicada, Universidad de Chile.
    8. Peter Ormosi, Stephen Davies, Martin Graffenberger, . "Mergers after cartels: How markets react to cartel breakdown," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    9. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2015. "Endogenous price commitment, sticky and leadership pricing: Evidence from the Italian petrol market," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 32-48.
    10. Harrington, Joseph E., 2017. "A theory of collusion with partial mutual understanding," Research in Economics, Elsevier, vol. 71(1), pages 140-158.
    11. Marco Marini & Giorgio Rodano, 2012. "Sequential vs Collusive Payoffs in Symmetric Duopoly Games," DIAG Technical Reports 2012-06, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    12. Möllers, Claudia, 2016. "Reputation and foreclosure with vertical integration: Experimental evidence," DICE Discussion Papers 232, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    13. Bergantino, Angela Stefania & Capozza, Claudia & Capurso, Mauro, 2017. "Pricing strategies: who leads and who follows in the air and rail passenger markets in Italy," Working Papers 17_3, SIET Società Italiana di Economia dei Trasporti e della Logistica.
    14. Joseph E. Harrington, Jr., 2012. "A Theory of Tacit Collusion," Economics Working Paper Archive 588, The Johns Hopkins University,Department of Economics.
    15. Bos Iwan & Wandschneider Frederick, 2011. "Cartel Ringleaders and the Corporate Leniency Program," Research Memorandum 038, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

    More about this item

    Keywords

    Collusion; Price leadership;

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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