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Product market segmentation and output collusion within substitute products

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  • Xu, Xu
  • Coatney, Kalyn T.

Abstract

We extend the differentiated product model, first developed by Bowley (1924), by relaxing the assumption that each firm produces only one differentiated product. By doing so, we are able to analyze the potential for collusive market segmentation in a two-stage decision framework, first in product space and second in output. We find that when firms cannot coordinate on output, the required discount factor that supports collusive market segmentation is strictly decreasing in product substitutability and is greater than partial output and full collusion. Overall we find that output collusion alone is easier to sustain than collusive product market segmentation.

Suggested Citation

  • Xu, Xu & Coatney, Kalyn T., 2015. "Product market segmentation and output collusion within substitute products," Journal of Economics and Business, Elsevier, vol. 77(C), pages 1-15.
  • Handle: RePEc:eee:jebusi:v:77:y:2015:i:c:p:1-15
    DOI: 10.1016/j.jeconbus.2014.07.002
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    Cited by:

    1. Abby Kelly & Kalyn T. Coatney & Xiaofei Li & Keith H. Coble, 2020. "Subsidy Incidence in the Presence of Bertrand Suppliers of Complementary Inputs: A U.S. Agricultural Example," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 479-501, September.

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    More about this item

    Keywords

    Collusion; Differentiated products; Market segmentation; Trigger strategies;
    All these keywords.

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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