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On the relationship between product substitutability and tacit collusion

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  • Rajeev K. Tyagi

    (University of California, Irvine, CA, USA)

Abstract

This paper examines the effect of increased product substitutability on quantity-setting firms' ability to sustain tacit collusion in a market. It uses a general demand function and the trigger strategy of Friedman (Friedman JW. 1971. A non-cooperative equilibrium for supergames. Review of Economic Studies 38: 1-12) to show that while increased product substitutability hinders sustainability of tacit collusion in the case of linear and concave demand functions, it may either hinder or facilitate firms' ability to sustain tacit collusion in the case of convex demand functions. Thus, this paper adds to the growing view that one must use a case-by-case analysis in judging whether firms in more homogenous product markets find it easier or harder to tacitly collude. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Rajeev K. Tyagi, 1999. "On the relationship between product substitutability and tacit collusion," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 293-298.
  • Handle: RePEc:wly:mgtdec:v:20:y:1999:i:6:p:293-298
    DOI: 10.1002/(SICI)1099-1468(199909)20:6<293::AID-MDE941>3.0.CO;2-T
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    References listed on IDEAS

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    1. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
    2. E. H. Chamberlin, 1929. "Duopoly: Value Where Sellers Are Few," The Quarterly Journal of Economics, Oxford University Press, vol. 44(1), pages 63-100.
    3. Fisher, Franklin M, 1987. "Horizontal Mergers: Triage and Treatment," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 23-40, Fall.
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    Cited by:

    1. Raphael Thomadsen & Ki-Eun Rhee, 2007. "Costly Collusion in Differentiated Industries," Marketing Science, INFORMS, vol. 26(5), pages 660-665, 09-10.
    2. repec:eee:indorg:v:56:y:2018:i:c:p:49-77 is not listed on IDEAS
    3. David Collie, 2004. "Collusion and the elasticity of demand," Economics Bulletin, AccessEcon, vol. 12(3), pages 1-6.
    4. Zimmerman, Paul R., 2010. "On the sustainability of collusion in Bertrand supergames with discrete pricing and nonlinear demand," MPRA Paper 20249, University Library of Munich, Germany.
    5. Osterdal, Lars Peter, 2003. "A note on the stability of collusion in differentiated oligopolies," Research in Economics, Elsevier, vol. 57(1), pages 53-64, March.
    6. Goto, Ujo & Iizuka, Toshiaki, 2016. "Cartel sustainability in retail markets: Evidence from a health service sector," International Journal of Industrial Organization, Elsevier, vol. 49(C), pages 36-58.

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