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Sustainabnility of Product Market Collusion under Credit Market Imperfections

Listed author(s):
  • Sugata Marjit
  • Arijit Mukherjee
  • Lei Yang

We study the implications of credit constraints for the sustainability of product market collusion in a bank-financed oligopoly in which firms face an imperfect credit market. We consider two situations, without and with credit rationing, i.e., with a binding credit limit. When there is credit rationing, a moderately higher cost of external financing may affect the degree of collusion, but a substantial increase keeps it unaffected relative to the no-constraint case. A permanent adverse demand shock in this setup does not affect the possibility of collusion, but may aggravate financing constraints and eventually lead to collusion. We consider both Cournot and Bertrand models, and the results are qualitatively the same.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 6292.

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Date of creation: 2016
Handle: RePEc:ces:ceswps:_6292
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