Competitive Prices as Profit-Maximizing Cartel Prices
VU University Amsterdam - Department of Econometrics; Tinbergen Institute
VU University Amsterdam - Department of Economics; TILEC
Vanderbilt University - College of Arts and Science - Department of Economics
April 27, 2010
Tinbergen Institute Discussion Paper 10-047/1
Even under antitrust enforcement, firms may still form a cartel in an infinitely-repeated oligopoly model when the discount factor is sufficiently close to one. We present a linear oligopoly model where the profit-maximizing cartel price converges to the competitive equilibrium price as the discount factor goes to one. We then identify a set of necessary conditions for this seemingly counter-intuitive result.
Number of Pages in PDF File: 11
Keywords: Antitrust enforcement, Cartel, Oligopoly, Repeated game
JEL Classification: L4, C7working papers series
Date posted: May 2, 2010
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