IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1812.10293.html
   My bibliography  Save this paper

Cartel Stability under Quality Differentiation

Author

Listed:
  • Iwan Bos
  • Marco Marini

Abstract

This note considers cartel stability when the cartelized products are vertically differentiated. If market shares are maintained at pre-collusive levels, then the firm with the lowest competitive price-cost margin has the strongest incentive to deviate from the collusive agreement. The lowest-quality supplier has the tightest incentive constraint when the difference in unit production costs is sufficiently small.

Suggested Citation

  • Iwan Bos & Marco Marini, 2018. "Cartel Stability under Quality Differentiation," Papers 1812.10293, arXiv.org.
  • Handle: RePEc:arx:papers:1812.10293
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1812.10293
    File Function: Latest version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marco A. Marini, 2018. "Collusive agreements in vertically differentiated markets," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 3, pages 34-56, Edward Elgar Publishing.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. Luis C. Corchón & Marco A. Marini (ed.), 2018. "Handbook of Game Theory and Industrial Organization, Volume II," Books, Edward Elgar Publishing, number 17978.
    4. Giulio Ecchia & Luca Lambertini, 1997. "Minimum Quality Standards and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 101-113, March.
    5. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    6. Symeonidis, George, 1999. "Cartel stability in advertising-intensive and R&D-intensive industries," Economics Letters, Elsevier, vol. 62(1), pages 121-129, January.
    7. Luis C. Corchón & Marco A. Marini (ed.), 2018. "Handbook of Game Theory and Industrial Organization, Volume I," Books, Edward Elgar Publishing, number 16873.
    8. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    9. Harrington, Joseph E., 2006. "How Do Cartels Operate?," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(1), pages 1-105, August.
    10. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    11. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    12. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 155-177, June.
    13. Ecchia, Giulio & Lambertini, Luca, 1997. "Minimum Quality Standards and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 101-113, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Iwan Bos & Marco A. Marini, 2022. "Collusion in quality‐segmented markets," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(2), pages 293-323, April.
    2. Innocenti, Federico & Menicucci, Domenico, 2021. "Partial compatibility in oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 351-378.
    3. Bos, Iwan & Marini, Marco A. & Saulle, Riccardo D., 2020. "Cartel formation with quality differentiation," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 36-50.
    4. Leonardo Madio & Aldo Pignataro, 2022. "Collusion sustainability with a capacity constrained firm," "Marco Fanno" Working Papers 0295, Dipartimento di Scienze Economiche "Marco Fanno".
    5. Thanos Athanasopoulos & Burak Dindaroglu & Georgios Petropoulos, 2021. "Stability of collusion and quality differentiation- a Nash bargaining approach," Working Papers 43226, Bruegel.
    6. Shenglei Pei & Lijuan Ye & Wei Zhou, 2022. "Application of convolutional neural network under nonlinear excitation function in the construction of employee incentive and constraint model," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(3), pages 1142-1153, December.
    7. Stanislav Stoykov & Ivan Kostov, 2023. "Price Competition with Differentiated Products on a Two-Dimensional Plane: The Impact of Partial Cartel on Firms’ Profits and Behavior," Games, MDPI, vol. 14(2), pages 1-25, March.
    8. Amit Gayer, 2023. "Duopoly and Endogenous Single Product Quality Strategies," Games, MDPI, vol. 14(4), pages 1-11, August.
    9. Neelanjan Sen & Priyansh Minocha & Arghya Dutta, 2023. "Technology licensing and collusion," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 694-752, September.
    10. Leonardo Madio & Aldo Pignataro, 2022. "Collusion Sustainability with a Capacity Constrained Firm," CESifo Working Paper Series 10170, CESifo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Iwan Bos & Marco A. Marini, 2022. "Collusion in quality‐segmented markets," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(2), pages 293-323, April.
    2. Bos, Iwan & Marini, Marco A. & Saulle, Riccardo D., 2020. "Cartel formation with quality differentiation," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 36-50.
    3. Gabszewicz Jean J. & Marini Marco A. & Tarola Ornella, 2019. "Endogenous Mergers in Markets with Vertically Differentiated Products," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-22, January.
    4. Radoslav Raykov, 2014. "Uncertain Costs and Vertical Differentiation in an Insurance Duopoly," Staff Working Papers 14-14, Bank of Canada.
    5. Ya‐chin Wang & Leonard F.s. Wang, 2009. "Equivalence Of Competition Mode In A Vertically Differentiated Duopoly With Delegation," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 577-590, December.
    6. Min Chen & Konstantinos Serfes, 2012. "Minimum quality standard regulation under imperfect quality observability," Journal of Regulatory Economics, Springer, vol. 41(2), pages 269-291, April.
    7. Bae, Sang Hoo & Sarkis, Joseph & Yoo, Chung Sik, 2011. "Greening transportation fleets: Insights from a two-stage game theoretic model," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 793-807.
    8. Marco A. Marini, 2018. "Collusive agreements in vertically differentiated markets," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 3, pages 34-56, Edward Elgar Publishing.
    9. Stefan Lutz & Mario Pezzino, 2012. "International Strategic Choice of Minimum Quality Standards and Welfare," Journal of Common Market Studies, Wiley Blackwell, vol. 50(4), pages 594-613, July.
    10. Mario Pezzino, 2010. "Minimum Quality Standards with More Than Two Firms Under Cournot Competition," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(3), pages 26-45, August.
    11. Roberto Cellini & Fabio Lamantia, 2015. "Quality competition in markets with regulated prices and minimum quality standards," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 345-370, April.
    12. Stefan Napel & Gunnar Oldehaver, 2011. "A dynamic perspective on minimum quality standards under Cournot competition," Journal of Regulatory Economics, Springer, vol. 39(1), pages 29-49, February.
    13. Stefan Napel & Gunnar Oldehaver, 2007. "Static Costs vs. Dynamic Benefits of a Minimum Quality Standard under Cournot Competition," Discussion Papers 23, Aboa Centre for Economics.
    14. Pierre M. Picard & Alessandro Tampieri, 2016. "Income Effects and Vertical Differentiation in International Trade," DEM Discussion Paper Series 16-05, Department of Economics at the University of Luxembourg.
    15. George Deltas & Thanasis Stengos & Eleftherios Zacharias, 2011. "Product line pricing in a vertically differentiated oligopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 44(3), pages 907-929, August.
    16. Cédric Argenton, 2010. "Exclusive Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 690-716, September.
    17. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    18. C. Benassi & A. Chirco & C. Colombo, 2015. "Beyond the Uniform Distribution: Equilibrium Prices and Qualities in a Vertically Differentiated Duopoly," Working Papers wp1044, Dipartimento Scienze Economiche, Universita' di Bologna.
    19. Olivier Bonroy, 2006. "Le standard de qualité minimale est-il un instrument socialement optimal ?. Une revue de littérature," Revue économique, Presses de Sciences-Po, vol. 57(1), pages 35-53.
    20. Emanuele Bacchiega & Antonio Minniti & Arsen Palestini, 2016. "Quality, distance and trade: A strategic approach," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 165-191, March.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1812.10293. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.