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Price or Quantity in Tacit Collusion?

  • Luca Lambertini

    (Dept. of Economics, University of Bologna)

  • Christian Schultz

    (Institute of Economics, University of Copenhagen)

We investigate the choice of market variable, price or quantity, of an optimal implicit cartel. If the discount factor is high, the cartel can realize the monopoly profit in both cases. Otherwise, it is optimal for the cartel to rely on quantities in the collusive phase if goods are substitutes and prices if goods are complements. The reason is that this minimizes the gains from deviations from collusive play.

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File URL: http://www.econ.ku.dk/cie/dp/dp_2000-2002/2001-05.pdf/
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Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2001-05.

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Length: 7 pages
Date of creation: Oct 2001
Date of revision:
Handle: RePEc:kud:kuieci:2001-05
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  1. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
  2. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  3. Rothschild, R., 1992. "On the sustainability of collusion in differentiated duopolies," Economics Letters, Elsevier, vol. 40(1), pages 33-37, September.
  4. Majerus, David W., 1988. "Price vs. quantity competition in oligopoly supergames," Economics Letters, Elsevier, vol. 27(3), pages 293-297.
  5. L. Lambertini & C. Schultz, 2000. "Price vs Quantityin a Repeated Differentiated Duopoly," Working Papers 379, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  7. Albaek, Svend & Lambertini, Luca, 1998. "Collusion in differentiated duopolies revisited," Economics Letters, Elsevier, vol. 59(3), pages 305-308, June.
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