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A theory of hub-and-spoke collusion

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  • Sahuguet, Nicolas
  • Walckiers, Alexis

Abstract

We develop a model of hub-and-spoke collusion between a manufacturer and two retailers. Demand is stochastic, and collusion between retailers is difficult; the best collusive equilibrium is inefficient (Rotemberg and Saloner (1986)). In the hub-and-spoke collusive agreement, retailers transmit their information about the state of demand to the supplier. The supplier uses this information to adjust the wholesale price. By organizing the collusion, the supplier increases profits of the vertical chain. We show that, surprisingly, this type of collusive agreement can under some conditions improve consumer welfare.

Suggested Citation

  • Sahuguet, Nicolas & Walckiers, Alexis, 2017. "A theory of hub-and-spoke collusion," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 353-370.
  • Handle: RePEc:eee:indorg:v:53:y:2017:i:c:p:353-370
    DOI: 10.1016/j.ijindorg.2016.04.008
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    References listed on IDEAS

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    Cited by:

    1. Yu Awaya, 2019. "Collusion and Information Exchange," The Japanese Economic Review, Springer, vol. 70(3), pages 394-402, September.

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    More about this item

    Keywords

    collusion; vertical relations; cartel; information exchange;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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