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Profit-Sharing in a Collusive Industry

Author

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  • Osborne, Martin J.
  • Pitchik, Carolyn

Abstract

We study a model in which collusive duopolists divide up the monopoly profit according to their relative bargaining power. We are particularly interested in how the negotiated profit shares depend on the sizes of the firms. If each can produce at the same constant unit cost up to its capacity, we show that the profit per unit of capacity of the small firm is higher than that of the large one. We also study how the ratio of the negotiated profits depends on the size of demand relative to industry capacity, and how this ratio changes with variations in demand.
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Suggested Citation

  • Osborne, Martin J. & Pitchik, Carolyn, 1983. "Profit-Sharing in a Collusive Industry," Working Papers 83-06, C.V. Starr Center for Applied Economics, New York University.
    • Handle: RePEc:cvs:starer:83-06
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    Citations

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    Cited by:

    1. Tay-Cheng Ma, 2005. "Strategic investment and excess capacity: A study of the Taiwanese flour industry," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 153-170, May.
    2. Ismail Saglam, 2020. "Bargaining over collusion: the threat of supply function versus Cournot competition under demand uncertainty and cost asymmetry," The Japanese Economic Review, Springer, vol. 71(4), pages 671-693, October.
    3. Porter, Robert H., 2020. "Mergers and coordinated effects," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    4. Ma, Tay-Cheng, 2005. "Strategic Investment and Excess Capacity: A Study of the Taiwanese Flour Industry," Journal of Applied Economics, Universidad del CEMA, vol. 8(01), pages 1-18, May.
    5. Saglam, Ismail, 2018. "Bargaining over Collusion Profits under Cost Asymmetry and Demand Uncertainty," MPRA Paper 84007, University Library of Munich, Germany.
    6. Filipa Mota & João Correia-da-Silva & Joana Pinho, 2023. "Public–Private Collusion," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(4), pages 393-417, June.
    7. Ma, Tay-Cheng, 2008. "Disadvantageous collusion and government regulation," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 168-185, January.
    8. Neelanjan Sen & Urvashi Tandon & Rajit Biswas, 2024. "Collusion under product differentiation," Journal of Economics, Springer, vol. 142(1), pages 1-43, June.
    9. António Brandão & Joana Pinho & Hélder Vasconcelos, 2014. "Asymmetric Collusion with Growing Demand," Journal of Industry, Competition and Trade, Springer, vol. 14(4), pages 429-472, December.
    10. Aitor Ciarreta & Carlos Gutiérrez-Hita, 2012. "Collusive behaviour under cost asymmetries when firms compete in supply functions," Journal of Economics, Springer, vol. 106(3), pages 195-219, July.
    11. Hattori, Keisuke, 2021. "Profit-Sharing vs Price-Fixing Collusion with Heterogeneous Firms," MPRA Paper 110800, University Library of Munich, Germany.
    12. Schmalensee, R., 1985. "Competitive advantage and collusion," LIDAM Discussion Papers CORE 1985043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    13. Macleod, W. Bentley, 1985. "A theory of conscious parallelism," European Economic Review, Elsevier, vol. 27(1), pages 25-44, February.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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