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Collusive Equilibrium in the Great Salt Duopoly

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  • Rees, R.

Abstract

This paper uses data presented in a report of the Monopolies and Mergers Commission on the market for white salt to test the implications of some recent developments in oligopoly theory. The market in question is a homogeneous, price-setting duopoly where firms are subject to capacity constraints. We find that the conclusions of models based on one-shot non-cooperative games do not hold. Collusion in the market is readily explained by the types of threat strategies underlying Abreu's 'simple penal codes.' Possible explanations of the collusive equilibrium in terms of joint profit maximization are not supported by the data. Indeed the explanation of the equilibrium remains an open question. Copyright 1993 by Royal Economic Society.
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Suggested Citation

  • Rees, R., 1991. "Collusive Equilibrium in the Great Salt Duopoly," Working Papers 1991-15, University of Guelph, Department of Economics and Finance.
    • Handle: RePEc:gue:guelph:1991-15
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    Cited by:

    1. Pierre-Pascal Gendron, 1996. "Corporation Tax Asymmetries: An Oligopolistic Supergame Analysis," Working Papers ecpap-96-04, University of Toronto, Department of Economics.
    2. Rees, Ray, 1993. "Collusive Equilibrium in the Great Salt Duopoly," Economic Journal, Royal Economic Society, vol. 103(419), pages 833-848, July.
    3. Vasconcelos, Silvinha Pinto & Ramos, Francisco de Souza, 2002. "Collusion in the Brazilian steel sector: A new industrial economy approach," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 22(1), May.
    4. Vital Anderhub & Werner Güth & Ulrich Kamecke & Hans-Theo Normann, 2003. "Capacity Choices and Price Competition in Experimental Markets," Experimental Economics, Springer;Economic Science Association, vol. 6(1), pages 27-52, June.
    5. Kyle Hampton & Katerina Sherstyuk, 2012. "Demand shocks, capacity coordination, and industry performance: lessons from an economic laboratory," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 139-166, March.
    6. Emmanuel Dechenaux & Dan Kovenock, 2011. "Endogenous rationing, price dispersion and collusion in capacity constrained supergames," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 29-74, May.
    7. Waterson, Michael, "undated". "Consumers and Competition," Economic Research Papers 269563, University of Warwick - Department of Economics.
    8. John Child & Terence Tsai, 2005. "The Dynamic Between Firms’ Environmental Strategies and Institutional Constraints in Emerging Economies: Evidence from China and Taiwan," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 95-125, January.
    9. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    10. Tay-Cheng Ma, 2005. "The Collusive Equilibrium in a Quantity-Setting Supergame: An Application to Taiwan’s Flour Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 27(2), pages 107-124, September.
    11. Marcel Canoy & S. Onderstal, 2003. "Tight oligopolies: in search of proportionate remedies," CPB Document 29.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Phlips, Louis, 1996. "On the detection of collusion and predation," European Economic Review, Elsevier, vol. 40(3-5), pages 495-510, April.

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