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Excess Capacity and Collusion

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  • Davidson, Carl
  • Deneckere, Raymond J

Abstract

In this paper, the authors analyze a restricted class of equilibria in the dynamic model of J. P. Benoit and V. Krishna (1987) in which firms choose their scale of operation before engaging in a repeated game of price competition. Benoit and Krishna established that all firms carry excess capacity in all collusive equilibria. As the authors are interested in the relationship between excess capacity and collusion in price, they examine equilibria in which firms tacitly collude in price, but not in investment decisions. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-541, August.
    • Handle: RePEc:ier:iecrev:v:31:y:1990:i:3:p:521-41
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    References listed on IDEAS

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    1. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    2. Dilip Abreu & David G. Pearce & Ennio Stacchetti, 1984. "Optimal Cartel Equilibria with Imperfect Monitoring," Cowles Foundation Discussion Papers 726, Cowles Foundation for Research in Economics, Yale University.
    3. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    4. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
    5. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    6. Osborne, Martin J & Pitchik, Carolyn, 1987. "Cartels, Profits and Excess Capacity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 413-428, June.
    7. B. Curtis Eaton & Richard G. Lipsey, 1981. "Capital, Commitment, and Entry Equilibrium," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 593-604, Autumn.
    8. William A. Brock & José A. Scheinkman, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 371-382.
    9. Esposito, Frances Ferguson & Esposito, Louis, 1974. "Excess Capacity and Market Structure," The Review of Economics and Statistics, MIT Press, vol. 56(2), pages 188-194, May.
    10. Judith R. Gelman & Steven C. Salop, 1983. "Judo Economics: Capacity Limitation and Coupon Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 315-325, Autumn.
    11. Osborne, Martin J. & Pitchik, Carolyn, 1986. "Price competition in a capacity-constrained duopoly," Journal of Economic Theory, Elsevier, vol. 38(2), pages 238-260, April.
    12. Mann, H Michael & Meehan, James W, Jr & Ramsay, Glen A, 1979. "Market Structure and Excess Capacity: A Look at Theory and Some Evidence," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 156-159, February.
    13. James A. Brander & Richard Harris, 1983. "Anticipated Collusion and Excess Capacity," Working Papers 530, Queen's University, Department of Economics.
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