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Sustaining collusion in markets with entry driven by balanced growth

Author

Listed:
  • João Correia-da-Silva

    () (Allée de Brienne
    Rua Dr. Roberto Frias)

  • Joana Pinho

    () (Rua Dr. Roberto Frias)

  • Hélder Vasconcelos

    () (Rua Dr. Roberto Frias)

Abstract

Abstract This paper studies the sustainability of collusion in markets where growth is not restricted to occur at a constant rate and may trigger future entry. Entry typically occurs later along the punishment path than along the collusive path (since profits are lower in the former case), and may not even occur along the punishment path. The possibility of delaying or even deterring entry may, therefore, constitute an additional incentive for deviating just before entry is supposed to occur along the collusive path. If firms set quantities and revert to Cournot equilibrium after a deviation, this incentive more than compensates for the fact that there are more firms after entry, making collusion harder to sustain before entry than after entry. If, instead, firms set prices or use optimal penal codes, deterring entry by breaking the cartel is not profitable, and thus collusion is harder to sustain after entry than before entry. The proposed model encompasses and explains conflicting results derived in the extant literature under more restrictive settings, and derives some novel results.

Suggested Citation

  • João Correia-da-Silva & Joana Pinho & Hélder Vasconcelos, 2016. "Sustaining collusion in markets with entry driven by balanced growth," Journal of Economics, Springer, vol. 118(1), pages 1-34, May.
  • Handle: RePEc:kap:jeczfn:v:118:y:2016:i:1:d:10.1007_s00712-015-0464-2
    DOI: 10.1007/s00712-015-0464-2
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    References listed on IDEAS

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    Cited by:

    1. João Correia-da-Silva & Joana Pinho, 2018. "Collusion in mixed oligopolies and the coordinated effects of privatization," Journal of Economics, Springer, vol. 124(1), pages 19-55, May.

    More about this item

    Keywords

    Collusion; Entry; Market growth;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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