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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.
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    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.

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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp556.pdf
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    Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 556.

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    Length: 29 pages
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:wrk:warwec:556
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    Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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    1. R. Rothschild, 1997. "Product differentiation and cartel stability: Chamberlin versus Hotelling," The Annals of Regional Science, Springer, vol. 31(3), pages 259-271.
    2. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
    3. Tom Ross, 1990. "Cartel Stability And Product Differentiation," Carleton Industrial Organization Research Unit (CIORU) 90-04, Carleton University, Department of Economics.
    4. 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 317-27, June.
    5. Donsimoni, Marie-Paule, 1985. "Stable heterogeneous cartels," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 451-467, December.
    6. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 155-177, June.
    7. Lambertini, Luca, 1996. "Cartel Stability and the Curvature of Market Demand," Bulletin of Economic Research, Wiley Blackwell, vol. 48(4), pages 329-34, October.
    8. d'ASPREMONT, Claude & JACQUEMIN, Alexis & GABSZEWICZ, Jean J. & WEYMARK, John A., . "On the stability of collusive price leadership," CORE Discussion Papers RP -522, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    9. 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.
    10. Eaton, Curtis & Eswaran, Mukesh, 1998. "Endogenous Cartel Formation," Australian Economic Papers, Wiley Blackwell, vol. 37(1), pages 1-13, March.
    11. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
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