Entry Effects on Cartel Stability and the Joint Executive Committee
We extend Green and Porter's (1984) model to consider entry, by studying two alternative types of incumbent firms' post-entry reactions: cartel breakdown and accommodation of the entrants. We show that cooperation is more unstable if entry costs are low and if incumbents accommodate the new firms. We then test the applicability of the theoretical model to the type of collusion that characterizes the nineteenth-century railroad cartel in the US. The results provide support for the model predictions. In particular, cartel stability has been found to be negatively correlated with the number of firms in the agreement.
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