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A Cost-side Analysis on Collusive Sustainability

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  • L. Lambertini
  • D. Sasaki

Abstract

In an oligopoly supergame, firms' actions in prices and quantities are subject to non-negativity constraints. These constraints can obstruct the practicability of optimal punishment (a la Abreu (1989), Lambson (1987), and Hacker (1996)) in sustaining tacit collusion. Noting that the prospect of single-period optimal punishment depends indispensably upon firms` ability to charge prices strictly below marginal costs (loss-making pricing), under the presence of positive rice constraints, marginal costs can serve as a “fudge” to materialize single-period optimal punishment. In this paper we characterise the effects of profit-cost ratios (or mark-ups) on the sustainability of tacit collusion, in light of optimal punishment.

Suggested Citation

  • L. Lambertini & D. Sasaki, 1999. "A Cost-side Analysis on Collusive Sustainability," Working Papers 355, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:355
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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