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On the Sustainability of Product Market Collusion Under Credit Market Imperfection

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  • Sugata Marjit
  • Arijit Mukherjee
  • Lei Yang

Abstract

We study the implication of credit constraints for the sustainability of product market collusion in a bank financed Cournot duopoly when firms face an imperfect credit market. We consider two situations without or with credit rationing. When there is no credit rationing moderately higher cost of external finance may affect the degree of collusion, but a substantial increase keeps it unaffected. Permanent adverse demand shock in this set up does not affect the possibility of collusion, but may aggravate the finance constraint and eventually lead to collusion. We also discuss the case with credit rationing.

Suggested Citation

  • Sugata Marjit & Arijit Mukherjee & Lei Yang, 2015. "On the Sustainability of Product Market Collusion Under Credit Market Imperfection," Discussion Papers 2015-01, University of Nottingham, GEP.
  • Handle: RePEc:not:notgep:15/01
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    References listed on IDEAS

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    Keywords

    Collusion; Credit Market;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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