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- Title
Endogenous cartel formation with heterogeneous firms.
- Authors
Bos, Iwan; Harrington Jr., Joseph E.
- Abstract
In the context of an infinitely repeated capacity-constrained price game, we endogenize the composition of a cartel when firms are heterogeneous in their capacities. When firms are sufficiently patient, there exists a stable cartel involving the largest firms. A firm with sufficiently small capacity is not a member of any stable cartel. When a cartel is not all-inclusive, colluding firms set a price that serves as an umbrella with non-cartel members pricing below it and producing at capacity. Contrary to previous work, our results suggest that the most severe coordinated effects may come from mergers involving moderate-sized firms, rather than the largest or smallest firms.
- Subjects
CARTELS; PRICE maintenance; PRICING; INDUSTRIAL concentration; ECONOMIC competition
- Publication
RAND Journal of Economics (Wiley-Blackwell), 2010, Vol 41, Issue 1, p92
- ISSN
0741-6261
- Publication type
Article
- DOI
10.1111/j.1756-2171.2009.00091.x