Cartel Stability in a Dynamic Oligopoly
We study the stability of cartels in a dynamic oligopoly. We use the differential game model of an oligopoly with sticky prices (Fershtman and Kamien 1987). We show that when firms use closed-loop strategies and the rate of increase of the marginal cost is "small enough", the grand coalition (i.e., when the cartel includes all firms) is stable: it is unprofitable for a firm to exit the cartel. Moreover we show that a cartel of 3 firms is stable for any positive rate of increase of the marginal cost: it is not profitable for an insider firm to exit the coalition, nor it is profitable for an outsider firm to join the coalition. When firms use open-loop strategies we show that no cartel is stable.
|Date of creation:||2005|
|Date of revision:|
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"On the stability of collusive price leadership,"
CORE Discussion Papers RP
522, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, November.
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