Output-Expanding Collusion in the Presence of a Competitive Fringe

21 Pages Posted: 2 Mar 2010

See all articles by Juan-Pablo Montero

Juan-Pablo Montero

Massachusetts Institute of Technology (MIT) - Center for Energy and Environmental Policy Research (CEEPR); Pontifical Catholic University of Chile - Institute of Economics

Juan Ignacio Guzman

affiliation not provided to SSRN

Abstract

Following the structure of many commodity markets, we consider a few large firms and a competitive fringe of many small suppliers choosing quantities in an infinite-horizon setting subject to demand shocks. We show that a collusive agreement among the large firms may not only bring an output contraction but also an output expansion (relative to the non-collusive output level). The latter occurs during booms and is due to the strategic substitutability of quantities. We also find that the time at which maximal collusion is most difficult to sustain can be either at booms or recessions. The international copper cartel of 1935–39 is used to illustrate some of our results.

Suggested Citation

Montero, Juan-Pablo and Guzman, Juan Ignacio, Output-Expanding Collusion in the Presence of a Competitive Fringe. The Journal of Industrial Economics, Vol. 58, No. 1, pp. 106-126, March 2010, Available at SSRN: https://ssrn.com/abstract=1562157 or http://dx.doi.org/10.1111/j.1467-6451.2010.00410.x

Juan-Pablo Montero (Contact Author)

Massachusetts Institute of Technology (MIT) - Center for Energy and Environmental Policy Research (CEEPR) ( email )

One Amherst Street, E40-279
Cambridge, MA 02142
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HOME PAGE: http://www.mit.edu/people/jpmonter

Pontifical Catholic University of Chile - Institute of Economics ( email )

Vicuna Mackenna 4860
Santiago
Chile
+56 2 686 4322 (Phone)
+56 2 686 6472 (Fax)

HOME PAGE: http://www.mit.edu/people/jpmonter

Juan Ignacio Guzman

affiliation not provided to SSRN

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