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Imperfect collusion in monitored markets with free entry

Author

Listed:
  • Ludwig Auer

    (Universität Trier)

  • Tu Anh Pham

    (Universität Trier)

Abstract

Surveys of antitrust cases reveal that colluding firms usually (1) attempt to minimise the risk of prosecution, (2) achieve merely imperfect levels of collusion, (3) compete against some independently acting firms, and (4) adjust to market entries and exits. In contrast, existing oligopoly models neglect some of the four listed stylised facts and, thus, overlook important interdependencies between them. Therefore, the present paper develops a general quantity leadership model that simultaneously accommodates all four stylised facts. The model is a three-stage game in which each firm must make three consecutive decisions: market entry or not, collusion or not, and output quantity. The framework is augmented by an antitrust authority that ensures free market access. In addition, the antitrust authority may directly obstruct collusion and it may threaten prosecution. The results of this study indicate that the latter two instruments are rather ineffective.

Suggested Citation

  • Ludwig Auer & Tu Anh Pham, 2023. "Imperfect collusion in monitored markets with free entry," Journal of Economics, Springer, vol. 140(3), pages 181-207, December.
    • Handle: RePEc:kap:jeczfn:v:140:y:2023:i:3:d:10.1007_s00712-023-00835-w
    DOI: 10.1007/s00712-023-00835-w
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cartel; Game; Leadership; Oligopoly; Stability; Sustainability;
    All these keywords.

    JEL classification:

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

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