Multi-market Collusion with Territorial Allocation
This paper develops a supergame model of collusion between price-setting oligopolists located in different markets separated by trade costs. The firms produce a homogenous good and sustain collusion based on territorial allocation of markets. We first show, in a more general framework than some earlier literature, that a reduction in trade costs can paradoxically increase the sustainability of collusion. Then we prove a new paradox where the scope for collusion may be enhanced by an increase in the number of firms. We discuss several implications for trade and antitrust policy in this context.
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| Length: | 41 pages |
| Date of creation: | Oct 2012 |
| Date of revision: | |
| Handle: | RePEc:cde:cdewps:217 |
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References listed on IDEAS
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- Stephen Davies & Matthew Olczak & Heather Coles, 2007. "Tacit Collusion, Firm Asymmetries and Numbers: Evidence from EC Merger Cases," Working Papers 07-7, Centre for Competition Policy, University of East Anglia.
- B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
- John Gross & William L. Holahan, 2003. "Credible Collusion in Spatially Separated Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 299-312, February.
- Philipp J. H. Schröder, 2004.
"Cartel Stability and Economic Integration,"
Discussion Papers of DIW Berlin
432, DIW Berlin, German Institute for Economic Research.
- Philipp J. H. Schröder, 2007. "Cartel Stability and Economic Integration," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 313-320, 05.
- Bhattacharjea, Aditya, 1995. "Strategic tariffs and endogenous market structures: Trade and industrial policies under imperfect competition," Journal of Development Economics, Elsevier, vol. 47(2), pages 287-312, August.
- Jeanine Miklós-Thal, 2011.
"Optimal collusion under cost asymmetry,"
Economic Theory,
Springer, vol. 46(1), pages 99-125, January.
- Jeanine Thal, 2005. "Optimal Collusion under Cost Asymmetry," Working Papers 2005-36, Centre de Recherche en Economie et Statistique.
- Miklos-Thal, Jeanine, 2008. "Optimal Collusion under Cost Asymmetry," MPRA Paper 11044, University Library of Munich, Germany.
- K. C. Fung, 1991. "Collusive Intra-industry Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 391-404, May.
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