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Collusion under product differentiation

Author

Listed:
  • Neelanjan Sen

    (Madras School of Economics)

  • Urvashi Tandon

    (Madras School of Economics)

  • Rajit Biswas

    (Centre For Development Studies)

Abstract

The present model analyses the possibility of stable cartels under vertical and horizontal product differentiation in the presence of cost asymmetry. This possibility is lesser for an agreement that allows the lower quality product to be produced when the quality difference (net of cost) increases or the level of horizontal product differentiation decreases. However, if side payments are allowed, and the cartel agreement does not allow the lower quality product to be produced, the result changes. In this second situation, the possibility of a stable cartel falls if the quality difference (net of cost) falls or the horizontal product differentiation increases. Welfare may increase after cartel formation if the lower quality good is not produced in the presence of side payments.

Suggested Citation

  • Neelanjan Sen & Urvashi Tandon & Rajit Biswas, 2024. "Collusion under product differentiation," Journal of Economics, Springer, vol. 142(1), pages 1-43, June.
    • Handle: RePEc:kap:jeczfn:v:142:y:2024:i:1:d:10.1007_s00712-023-00852-9
    DOI: 10.1007/s00712-023-00852-9
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    More about this item

    Keywords

    Cartel stability; Horizontal and vertical product differentiation; Cournot competition; Welfare;
    All these keywords.

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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