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Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies

  • Kirstein, Roland
  • Kirstein, Annette

The need for intra-firm incentive schemes allows remodeling the Cournot duopoly in wages (rather than in output levels). In both versions of the Cournot model, a cartel agreement is unstable. The new formulation, however, allows us to demonstrate that a collective wage agreement on minimum wages can stabilize the cartel solution. Beyond its relevance for strategic management, this result has a policy implication: competition authorities should observe collective wage agreements for their potential collusive effect on product markets. Moreover, the model may provide a new explanation why firms in reality pay lower than efficient variable wages and higher fixed wages than predicted by contract theory.

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File URL: http://econstor.eu/bitstream/10419/23069/1/2004-09_cartel.pdf
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Paper provided by Saarland University, CSLE - Center for the Study of Law and Economics in its series CSLE Discussion Paper Series with number 2004-09.

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Date of creation: 2004
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Handle: RePEc:zbw:csledp:200409
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