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The Neglected Effects of Demand Characteristics on the Sustainability of Collusion

  • Andrea Gallice

    ()

According to traditional IO models, the characteristics of market demand (intercept, slope, elasticity) and of technology (level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. The paper modifies this counterintuitive result by showing that all the above mentioned factors do a¤ect the sustainability of collusion when prices are assumed to be discrete rather than continuous. The sign of these effects is unambiguous. Their magnitude varies greatly: in some cases it is totally negligible, in others it becomes extremely relevant.

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File URL: http://servizi.sme.unito.it/icer_repec/RePEc/icr/wp2008/ICERwp03-08.pdf
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Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 03-2008.

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Length: 20 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:icr:wpicer:03-2008
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  1. David Collie, 2004. "Collusion and the elasticity of demand," Economics Bulletin, AccessEcon, vol. 12(3), pages 1-6.
  2. Helder Vasconcelos & Helder Vasconcelos, 2008. "Sustaining Collusion in Growing Markets," Working Papers 33, Portuguese Competition Authority.
  3. Dufwenberg, M. & Gneezy, U., 1998. "Price Competition and Market COncentration: An Experimental Study," Papers 1998-08, Uppsala - Working Paper Series.
  4. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  5. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
  6. Martin Dufwenberg & Uri Gneezy & Jacob Goeree & Rosemarie Nagel, 2007. "Price floors and competition," Economic Theory, Springer, vol. 33(1), pages 211-224, October.
  7. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
  8. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  9. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  10. Kaushik Basu, 2006. "Consumer Cognition and Pricing in the Nines in Oligopolistic Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 125-141, 03.
  11. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521816632.
  12. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
  13. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
  14. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site," Working Papers 2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  15. Robert Porter, 2005. "Detecting Collusion," Review of Industrial Organization, Springer, vol. 26(2), pages 147-167, December.
  16. repec:ebl:ecbull:v:12:y:2004:i:3:p:1-6 is not listed on IDEAS
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