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Cartel Stability and Product Differentiation: How Much Do the Size of the Cartel and the Size of the Industry Matter?


  • Posada, P.


This article analyses how the degree of product differentiation, the size of the cartel and the size of the industry affect the stability of a cartel formed by any number of firms in an industry of any size. The paper considers a supergame-theoretic model to define stability. After a non-loyal member leaves the cartel, two possible reactions by the remaining members of the cartel are assumed. The first one is a trigger strategy where the cartel dissolves after one member has left and the second is one where the cartel keeps acting as a cartel with one member less.

Suggested Citation

  • Posada, P., 2000. "Cartel Stability and Product Differentiation: How Much Do the Size of the Cartel and the Size of the Industry Matter?," The Warwick Economics Research Paper Series (TWERPS) 556, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:556

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    References listed on IDEAS

    1. Lambertini, Luca, 1996. "Cartel Stability and the Curvature of Market Demand," Bulletin of Economic Research, Wiley Blackwell, vol. 48(4), pages 329-334, October.
    2. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
    3. Ross, Thomas W., 1992. "Cartel stability and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 1-13, March.
    4. Donsimoni, Marie-Paule, 1985. "Stable heterogeneous cartels," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 451-467, December.
    5. R. Rothschild, 1997. "Product differentiation and cartel stability: Chamberlin versus Hotelling," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 31(3), pages 259-271.
    6. 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.
    7. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    8. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
    9. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
    10. Eaton, Curtis & Eswaran, Mukesh, 1998. "Endogenous Cartel Formation," Australian Economic Papers, Wiley Blackwell, vol. 37(1), pages 1-13, March.
    11. Donsimoni, Marie-Paule & Economides, Nicholas S & Polemarchakis, Herakles M, 1986. "Stable Cartels," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 317-327, June.
    12. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 155-177, June.
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    Cited by:

    1. Posada, P., 2001. "Leadership Cartels in Industries with Differentiated Products," The Warwick Economics Research Paper Series (TWERPS) 590, University of Warwick, Department of Economics.

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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General


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