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Product differentiation, price discrimination and collusion

  • Colombo, Stefano

The existing literature which analyses the relationship between the product differentiation degree and the sustainability of a collusive agreement on price assumes that firms cannot price discriminate, and concludes that there is a negative relationship between the product differentiation degree and the critical discount factor. This paper, in contrast, assumes that firms are able to price discriminate. Within the Hotelling framework, three different collusive schemes are studied: perfect collusion on discriminatory prices; perfect collusion on a uniform price; collusion not to discriminate. We obtain that the critical discount factor of the first and the third collusive scheme does not depend on the product differentiation degree, while the critical discount factor of the second collusive scheme depends positively on the product differentiation degree. Moreover, we show that imperfect collusion is more difficult to sustain than perfect collusion.

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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 64 (2010)
Issue (Month): 1 (March)
Pages: 18-27

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Handle: RePEc:eee:reecon:v:64:y:2010:i:1:p:18-27
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622941

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  1. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-37, March.
  2. 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.
  3. HAMILTON, Jonathan & THISSE, Jacques-François, . "Duopoly with spatial and quantity-dependent price discrimination," CORE Discussion Papers RP 998, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Stefano Colombo, 2009. "Sustainability of collusion with imperfect price discrimination and inelastic demand functions," Economics Bulletin, AccessEcon, vol. 29(3), pages 1687-1694.
  5. Qihong Liu & Konstantinos Serfes, 2002. "Quality of Information and Oligopolistic Price Discrimination," Industrial Organization 0207007, EconWPA.
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  7. 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.
  8. 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 773-93, November.
  9. Ross, Thomas W., 1992. "Cartel stability and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 1-13, March.
  10. Albaek, Svend & Lambertini, Luca, 1998. "Collusion in differentiated duopolies revisited," Economics Letters, Elsevier, vol. 59(3), pages 305-308, June.
  11. Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, vol. 54(3), pages 623-40, May.
  12. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 155-177, June.
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