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Collusion in spatially separated markets with quantity competition

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  • Kai Andree

Abstract

This paper develops the incentives to collude in a model with spatially separated markets and quantity setting firms. We find that increases in transportation costs stabilize the collusive agreement. We also show that, the higher the demand in both markets the less likely will collusion be sustained. Gross and Holahan (2003) use a similar model with price setting firms, we compare their results with ours to analyze the impact of the mode of competition on sustainability of collusion. Further we analyze the impact of collusion on social welfare and find that collusion may be welfare enhancing.

Suggested Citation

  • Kai Andree, 2011. "Collusion in spatially separated markets with quantity competition," Volkswirtschaftliche Diskussionsbeiträge 104, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
    • Handle: RePEc:pot:vwldis:104
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    References listed on IDEAS

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    1. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    2. Kai Andree & Juljana Calaki, 2011. "Product differentiation in a spatial Cournot model with asymmetric demand," Economics Bulletin, AccessEcon, vol. 31(2), pages 1125-1130.
    3. Jehiel, Philippe, 1992. "Product differentiation and price collusion," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 633-641, December.
    4. Hackner, Jonas, 1995. "Endogenous product design in an infinitely repeated game," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 277-299.
    5. repec:ebl:ecbull:v:12:y:2007:i:1:p:1-7 is not listed on IDEAS
    6. Hwang, Hong & Mai, Chao-cheng, 1990. "Effects of Spatial Price Discrimination on Output, Welfare, and Location," American Economic Review, American Economic Association, vol. 80(3), pages 567-575, June.
    7. José María Chamorro Rivas, 2000. "Spatial dispersion in cournot competition," Spanish Economic Review, Springer;Spanish Economic Association, vol. 2(2), pages 145-152.
    8. Marcella Scrimitore, 2011. "Spatial Discrimination, Product Substitutability And Welfare," Bulletin of Economic Research, Wiley Blackwell, vol. 63(3), pages 231-242, July.
    9. Hamilton, Jonathan H. & Thisse, Jacques-Francois & Weskamp, Anita, 1989. "Spatial discrimination : Bertrand vs. Cournot in a model of location choice," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 87-102, February.
    10. Liang, Wen-Jung & Hwang, Hong & Mai, Chao-Cheng, 2006. "Spatial discrimination: Bertrand vs. Cournot with asymmetric demands," Regional Science and Urban Economics, Elsevier, vol. 36(6), pages 790-802, November.
    11. Stefano Colombo, 2012. "Collusion in two models of spatial competition with quantity-setting firms," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 48(1), pages 45-69, February.
    12. John Gross & William L. Holahan, 2003. "Credible Collusion in Spatially Separated Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 299-312, February.
    13. Alessandra Chirco & Marcella Scrimitore & Corrado Benassi, 2007. "Spatial Discrimination with Quantity Competition and High Transportation Costs: a Note," Economics Bulletin, AccessEcon, vol. 12(1), pages 1-7.
    14. Chang, Myong-Hun, 1991. "The effects of product differentiation on collusive pricing," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 453-469, September.
    15. Chang, Myong-Hun, 1992. "Intertemporal Product Choice and Its Effects on Collusive Firm Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 773-793, November.
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    Cited by:

    1. Hamed Jafari & Seyed Reza Hejazi & Morteza Rasti-Barzoki, 2016. "Pricing Decisions in Dual-Channel Supply Chain Including Monopolistic Manufacturer and Duopolistic Retailers: A Game-Theoretic Approach," Journal of Industry, Competition and Trade, Springer, vol. 16(3), pages 323-343, September.
    2. Wen-Chung Guo & Fu-Chuan Lai, 2013. "The role of an intermediate market within the barbell model," Letters in Spatial and Resource Sciences, Springer, vol. 6(3), pages 151-161, November.
    3. Kai Andree & Mike Schwan, 2012. "Collusive Market Sharing with Spatial Competition," Economics Bulletin, AccessEcon, vol. 32(4), pages 3357-3364.
    4. Armando Garcia Pires, 2014. "Beyond Trade Costs: Firms’ Endogenous Access to International Markets," Journal of Industry, Competition and Trade, Springer, vol. 14(2), pages 229-257, June.
    5. Wen-Chung Guo & Fu-Chuan Lai, 2014. "Spatial price discrimination and location choice with labor markets," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(1), pages 103-119, January.
    6. Stefano Colombo, 2016. "A Model of Three Cities," International Regional Science Review, , vol. 39(4), pages 386-416, October.

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    More about this item

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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