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Collusion sustainability with a capacity-constrained firm

Author

Listed:
  • Leonardo Madio
  • Aldo Pignataro

Abstract

We study an infinitely repeated oligopoly game in which firms compete on quantity and one of them is capacity-constrained. We show that collusion sustainability is non-monotonic in the size of the capacity-constrained firm, which has little incentive to deviate from a cartel. We also present conditions for the emergence of a partial cartel, with the capacity-constrained firm being excluded by the large firms or self-excluded. In the latter case, we show under which circumstances the small firm induces a partial conspiracy that is Pareto-dominant. Implications for cartel identification and enforcement are finally discussed.

Suggested Citation

  • Leonardo Madio & Aldo Pignataro, 2024. "Collusion sustainability with a capacity-constrained firm," Oxford Economic Papers, Oxford University Press, vol. 76(1), pages 227-249.
    • Handle: RePEc:oup:oxecpp:v:76:y:2024:i:1:p:227-249.
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    File URL: http://hdl.handle.net/10.1093/oep/gpac054
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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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