Cartel Formation with Endogenous Capacity and Demand Uncertainty
This article provides a framework for the analysis of cartel formation. It models the strategic interaction among firms who invest into production capacity, sell a near-homogeneous good, and are subject to unexpected demand shocks with persistence. The firms either compete or collude in prices. The model shows that a reduction of demand may promote collusion despite lowering collusive profits. This is the case when capacities are durable and a perceptible decline in demand creates excess capacities that make competition more intense. One finds unstable cartels especially for low discount rates as these lead the firms to choose asymmetric capacities.
|Date of creation:||2013|
|Contact details of provider:|| Web page: http://www.socialpolitik.org/|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:79726. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.