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Cartel stability and profits under different reactions to entry in markets with growing demand

Author

Listed:
  • João Correia-da-Silva

    (CEF.UP e Faculdade de Economia do Porto.)

  • Joana Pinho

    (CEF.UP e Faculdade de Economia do Porto.)

  • Hélder Vasconcelos

    (Autoridade Nacional de Comunicações (ANACOM). CEF.UP e Faculdade de Economia do Porto.)

Abstract

We study sustainability of collusion with optimal penal codes, in markets where demand growth may trigger the entry of a new firm. In contrast with grim trigger strategies, optimal penal codes make collusion easier to sustain before entry than after. We compare different reactions of the incumbents to entry in terms of: sustainability of collusion, incumbent’s profits, entrant’s profits, consumer surplus and social welfare. Surprisingly, the incumbent firms may prefer competition to collusion.

Suggested Citation

  • João Correia-da-Silva & Joana Pinho & Hélder Vasconcelos, 2013. "Cartel stability and profits under different reactions to entry in markets with growing demand," FEP Working Papers 487, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:487
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    References listed on IDEAS

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    Cited by:

    1. António Brandão & Joana Pinho & Hélder Vasconcelos, 2014. "Asymmetric Collusion with Growing Demand," Journal of Industry, Competition and Trade, Springer, vol. 14(4), pages 429-472, December.

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    More about this item

    Keywords

    Collusion; Demand growth; Optimal penal codes; Reactions to entry.;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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