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Government-leading welfare-improving collusion

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  • Haraguchi, Junichi
  • Matsumura, Toshihiro

Abstract

We discuss government-leading welfare-improving collusion in a mixed duopoly. We formulate an infinitely repeated game in which a welfare-maximizing firm and a profit-maximizing firm coexist. The government proposes welfare-improving collusion and this is sustainable if both firms have incentives to follow it. We compare two competition structures—Cournot and Bertrand—in this long-run context. We find that Cournot competition yields greater welfare when the discount factor is sufficiently large, whereas Bertrand competition is better when the discount factor is small.

Suggested Citation

  • Haraguchi, Junichi & Matsumura, Toshihiro, 2018. "Government-leading welfare-improving collusion," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 363-370.
  • Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:363-370
    DOI: 10.1016/j.iref.2017.11.005
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    More about this item

    Keywords

    Repeated game; Cournot–Bertrand welfare comparison;

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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