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Asymmetric collusion with growing demand

  • António Brandão

    ()

    (Cef.up and Faculdade de Economia do Porto.)

  • Joana Pinho

    ()

    (Cef.up and Faculdade de Economia do Porto.)

  • Hélder Vasconcelos

    ()

    (Cef.up and Faculdade de Economia do Porto.)

We characterize collusion sustainability in markets where demand growth may trigger the entry of a new firm whose efficiency may be different from the efficiency of the incumbents. We find that the profit-sharing rule that firms adopt to divide the cartel profit after entry is a key determinant of the incentives for collusion (before and after entry). In particular, if the incumbents and the entrant are very asymmetric, collusion without side- payments cannot be sustained. However, if firms divide joint profits through bargaining and are sufficiently patient, collusion is sustainable even if firms are very asymmetric.

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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 510.

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Length: 54 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:por:fepwps:510
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