Consumer-Surplus-Enhancing Collusion and Trade

25 Pages Posted: 27 Oct 2012 Last revised: 14 Jun 2018

See all articles by George Deltas

George Deltas

University of Illinois at Urbana-Champaign - Department of Economics

Alberto Salvo

National University of Singapore (NUS) - Department of Economics

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: September 1, 2012

Abstract

That collusion among sellers hurts buyers is a central tenet in economics. We provide an oligopoly model in which collusion can raise consumer surplus. A differentiated-product duopoly operates in two geographically-separated markets. Each market is home to a single firm, but can import, at a cost, from the foreign firm. Under some circumstances, a perfect cartel, relative to duopolistic competition, raises the price of the imported good and lowers the price of the home good. This raises welfare for most consumers and increases aggregate consumer surplus. A similar possibility result applies to autarky. Our analysis applies beyond the spatial setting.

Keywords: Cross-hauling, Cartels, Monopoly, Consumer Surplus, Market Allocation Schemes, Home-market Principle, Two-way Trade, Autarky, Systems Competition

JEL Classification: F12, L41, D43

Suggested Citation

Deltas, George and Salvo, Alberto and Vasconcelos, Helder, Consumer-Surplus-Enhancing Collusion and Trade (September 1, 2012). RAND Journal of Economics, Vol. 43, No. 2, 2012. Available at SSRN: https://ssrn.com/abstract=2167514

George Deltas (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
450 Commerce West
Champaign, IL 61820
United States
217-333-4586 (Phone)
217-244-6678 (Fax)

Alberto Salvo

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Helder Vasconcelos

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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