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Cartels and Search

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  • Ireland, Norman
  • Waterson, Michael

Abstract

This paper unifies two significant but somewhat contradictory ideas. First, search costs potentially influence market price equilibria significantly; in many equilibria consumers do not search despite above-competitive prices. Second, cartels must guard against individual members offering lower prices, thereby creating incentives for consumers to search. We develop a simple framework, and then an example, in which whether search takes place depends upon the magnitude of search costs. Three potential equilibria result, dependent upon model parameters. These include a tacit cartel agreement exhibiting price variance and volatility. A policy conclusion is that such market characteristics do not always guarantee non-cartelisation.

Suggested Citation

  • Ireland, Norman & Waterson, Michael, 2006. "Cartels and Search," Economic Research Papers 269740, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269740
    DOI: 10.22004/ag.econ.269740
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    References listed on IDEAS

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    Keywords

    Agricultural and Food Policy; Marketing;

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