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The neglected effects of demand characteristics on the sustainability of collusion

  • Gallice, Andrea

According to standard IO models, the parameters that characterize market demand (intercept, slope, and elasticity) and technology (the level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. This paper modifies this counterintuitive result by showing that all of the aforementioned factors do indeed matter when prices are assumed to be discrete rather than continuous. The sign of these effects is clear. Their magnitude varies greatly; i.e., in some cases, it is totally negligible, while in others, it becomes extremely relevant.

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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 64 (2010)
Issue (Month): 4 (December)
Pages: 240-246

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Handle: RePEc:eee:reecon:v:64:y:2010:i:4:p:240-246
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622941

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  1. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site," Working Papers 2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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  8. repec:ebl:ecbull:v:12:y:2004:i:3:p:1-6 is not listed on IDEAS
  9. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
  10. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  11. Kaushik Basu, 2006. "Consumer Cognition and Pricing in the Nines in Oligopolistic Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 125-141, 03.
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  13. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  14. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
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