Endogenous Cartel Formation with Heterogeneous Firms
In the context of an infinitely repeated capacity-constrained price game, we endogenize the composition of a cartel when .rms are heterogeneous in their capacities. When .rms are sufficiently patient, there exists a stable cartel involving the largest .rms. A .rm with sufficiently small capacity is not a member of any stable cartel. When a cartel is not all-inclusive, colluding firms set a price that serves as an umbrella with non-cartel members pricing below it and producing at capacity. Contrary to previous work, our results suggest that the most severe coordinated e¡èects may come from mergers involving moderate-sized firms, rather than the largest or smallest firms.
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|Date of revision:||Nov 2008|
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- Marc Escrihuela Villar, 2008.
"A note on cartel stability and endogenous sequencing with tacit collusion,"
DEA Working Papers
29, Universitat de les Illes Balears, Departament d'Economía Aplicada.
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CORE Discussion Papers RP
522, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Marc Escrihuela-Villar, 2008. "On endogenous cartel size under tacit collusion," Investigaciones Economicas, Fundación SEPI, vol. 32(3), pages 325-338, September.
- Harrington, Joseph E., 2006. "How Do Cartels Operate?," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(1), pages 1-105, August.
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