Sustaining Collusion in Growing Markets

39 Pages Posted: 17 Jun 2008

See all articles by Helder Vasconcelos

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: June 2008

Abstract

The impact of demand growth on the collusion possibilities is investigated in a Cournot supergame where market growth may trigger future entry and the collusive agreement is enforced by the most profitable 'grim trigger strategies' available. It is shown that even in situations where perfect collusion can be sustained after entry, coping with a potential entrant in a market which is growing over time may completely undermine any pre-entry collusive plans of the incumbent firms. This is because, before entry, a deviation and the following punishment phase may become more attractive thanks to their additional effect in terms of delaying entry.

Keywords: Collusion, Demand Growth, Entry

JEL Classification: D43, L13, L41

Suggested Citation

Vasconcelos, Helder, Sustaining Collusion in Growing Markets (June 2008). CEPR Discussion Paper No. DP6865. Available at SSRN: https://ssrn.com/abstract=1146828

Helder Vasconcelos (Contact Author)

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Dr. Roberto Frias
s/n
4200-464 Porto, 4200-464
Portugal

HOME PAGE: http://www.fep.up.pt/docentes/hvasconcelos

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