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How Demand Information Can Destabilize a Cartel

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Abstract

This paper studies a symmetric Bertrand duopoly with imperfect mon- itoring where rms receive noisy public signals about the state of demand. These signals have two opposite e ects on the incentive to collude: avoid- ing punishment after a low-demand period increases collusive pro ts, mak- ing collusion more attractive, but it also softens the threat of punishment, which increases the temptation to undercut the rival. There are cases where the latter e ect dominates, and so the collusive equilibrium does not always exist when it does absent demand information. These ndings are related to the Sugar Institute Case studied by Genesove and Mullin (2001).

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  • Liliane Karlinger, 2008. "How Demand Information Can Destabilize a Cartel," Vienna Economics Papers 0803, University of Vienna, Department of Economics.
  • Handle: RePEc:vie:viennp:0803
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    References listed on IDEAS

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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