IDEAS home Printed from https://ideas.repec.org/p/wes/weswpa/2006-002.html

Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges

Author

Listed:
  • Christiaan Hogendorn

    (Economics Department, Wesleyan University)

Abstract

In many capacity-intensive industries (e.g. electricity, bandwidth), exchanges allow firms to buy and sell wholesale capacity before selling on the retail market. This allows firms to smooth demand shocks, but it also raises suspicions that exchanges facilitate tacit collusion to limit capacity investment. This paper models investment and exchange in a one-shot game and in a repeated game with tacit collusion. It finds that the presence of the exchange does not reduce total capacity investment, and thus does not raise consumer prices. In fact, the exchange may make it more difficult to sustain tacit collusion.

Suggested Citation

  • Christiaan Hogendorn, 2006. "Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges," Wesleyan Economics Working Papers 2006-002, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2006-002
    as

    Download full text from publisher

    File URL: http://repec.wesleyan.edu/pdf/chogendorn/2006002_hogendorn.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stenbacka, Rune, 1994. "Financial structure and tacit collusion with repeated oligopoly competition," Journal of Economic Behavior & Organization, Elsevier, vol. 25(2), pages 281-292, October.
    2. Kai-Uwe Kühn, 2001. "Fighting collusion by regulating communication between firms," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(32), pages 168-204.
    3. Vojislav Maksimovic, 1988. "Capital Structure in Repeated Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 389-407, Autumn.
    4. James W. Friedman, 1973. "A Non-cooperative Equilibrium for Supergames: A Correction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 435-435.
    5. John Kwoka, 2001. "Automobiles: The Old Economy Collides with the New," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(1), pages 55-69, August.
    6. David Lucking-Reiley & Daniel F. Spulber, 2001. "Business-to-Business Electronic Commerce," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 55-68, Winter.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ferrés, Daniel & Ormazabal, Gaizka & Povel, Paul & Sertsios, Giorgo, 2021. "Capital structure under collusion," Journal of Financial Intermediation, Elsevier, vol. 45(C).
    2. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    3. Guido Fioretti, 2004. "Will industrial districts exploit B2B? A local experience and a general assessment," Netnomics, Springer, vol. 6(3), pages 221-242, December.
    4. Sugata Marjit & Arijit Mukherjee & Lei Yang, 2016. "Sustainabnility of Product Market Collusion under Credit Market Imperfections," CESifo Working Paper Series 6292, CESifo.
    5. Neubecker, Leslie, 2002. "The strategic effect of debt in dynamic price competition with fluctuating demand," Tübinger Diskussionsbeiträge 250, University of Tübingen, School of Business and Economics.
    6. Abdulaziz Istaitieh & José M. Rodríguez‐Fernández, 2006. "Factor‐product markets and firm's capital structure: A literature review," Review of Financial Economics, John Wiley & Sons, vol. 15(1), pages 49-75.
    7. Spagnolo, Giancarlo, 1998. "Debt as a (Credible) Collusive Device, or: "Everybody Happy but the Consumer"," SSE/EFI Working Paper Series in Economics and Finance 243, Stockholm School of Economics, revised 01 Aug 2004.
    8. Ernesto Schargrodsky, 2002. "The Effect of Product Market Competition on Capital Structure: Empirical Evidence from the Newspaper Industry," Business School Working Papers veintiocho, Universidad Torcuato Di Tella.
    9. Rosellon Cifuentes, M.A., 1999. "Essays on financial policy, liquidation values and product markets," Other publications TiSEM 802f644e-3e93-4815-bf33-8, Tilburg University, School of Economics and Management.
    10. Istaitieh, Abdulaziz & Rodriguez-Fernandez, Jose M., 2006. "Factor-product markets and firm's capital structure: A literature review," Review of Financial Economics, Elsevier, vol. 15(1), pages 49-75.
    11. Kessing, Sebastian G. & Konrad, Kai A. & Kotsogiannis, Christos, 2006. "Federal tax autonomy and the limits of cooperation," Journal of Urban Economics, Elsevier, vol. 59(2), pages 317-329, March.
    12. Pierre-Pascal Gendron, 1996. "Corporation Tax Asymmetries: An Oligopolistic Supergame Analysis," Working Papers ecpap-96-04, University of Toronto, Department of Economics.
    13. Germán Coloma, 2002. "Un Modelo Integrado de Depredación y Colusión," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 39(116), pages 123-133.
    14. Lambertini, Luca, 1997. "Prisoners' Dilemma in Duopoly (Super)Games," Journal of Economic Theory, Elsevier, vol. 77(1), pages 181-191, November.
    15. Louis Corriveau, 2012. "Game theory and the kula," Rationality and Society, , vol. 24(1), pages 106-128, February.
    16. Wu, WenTing & Chen, XiaoQian & Zvarych, Roman & Huang, WeiLun, 2024. "The Stackelberg duel between Central Bank Digital Currencies and private payment titans in China," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    17. Sylwester Bejger, 2019. "Wholesale fuel price adjustment in Poland: examination of competi-tive performance," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 18(4), pages 385-412, December.
    18. Ghidoni, Riccardo & Suetens, Sigrid, 2019. "Empirical Evidence on Repeated Sequential Games," Other publications TiSEM ff3a441f-e196-4e45-ba59-c, Tilburg University, School of Economics and Management.
    19. Marjit, Sugata & Mukherjee, Arijit & Xu, Xinpeng & Yang, Lei, 2025. "Finance and collusion in oligopolistic markets," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).
    20. Ding, Haina, 2015. "Innovation strategies and stock price informativeness," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 491, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    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
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wes:weswpa:2006-002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Manolis Kaparakis (email available below). General contact details of provider: https://edirc.repec.org/data/edwesus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.