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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
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    References listed on IDEAS

    as
    1. Marco A. Marini, 2018. "Collusive agreements in vertically differentiated markets," Chapters,in: 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, October.
    3. repec:elg:eebook:17978 is not listed on IDEAS
    4. Harrington, Joseph E., 2006. "How Do Cartels Operate?," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(1), pages 1-105, August.
    5. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    6. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    7. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 155-177, June.
    8. 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.
    9. Symeonidis, George, 1999. "Cartel stability in advertising-intensive and R&D-intensive industries," Economics Letters, Elsevier, vol. 62(1), pages 121-129, January.
    10. Ecchia, Giulio & Lambertini, Luca, 1997. "Minimum Quality Standards and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 101-113, March.
    11. repec:elg:eebook:16873 is not listed on IDEAS
    12. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    Full references (including those not matched with items on IDEAS)

    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

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