On the Sustainability of Collusion in a Differentiated Oligopoly with a Cartel and a Fringe

6 Pages Posted: 21 Jan 2015

Date Written: December 2014

Abstract

We discuss the effects of the existence of non‐colluding (fringe) firms on cartel sustainability. We obtain, using trigger strategies, that with product differentiation collusion is always more easily sustained when firms compete in prices than when firms compete in quantities. This is true basically because (i) price competition is more intense than quantity competition, and (ii) fringe firms exacerbate the fact that cartel firms have more incentives to deviate from the agreement under quantity competition. This result reverses previous findings where, in the absence of fringe firms, product differentiation plays a crucial role in determining the effectiveness of price or quantity competition in sustaining collusion.

Keywords: cartel, fringe, sustainability

JEL Classification: D43, L11, L13, L41

Suggested Citation

Escrihuela Villar, Marc and Guillen, Jorge B., On the Sustainability of Collusion in a Differentiated Oligopoly with a Cartel and a Fringe (December 2014). Bulletin of Economic Research, Vol. 66, Issue S1, pp. S132-S137, 2014, Available at SSRN: https://ssrn.com/abstract=2552962 or http://dx.doi.org/10.1111/boer.12023

Marc Escrihuela Villar (Contact Author)

University of the Balearic Islands ( email )

Crtra. Valldemossa, km 7.5
Ed. Jovellanos
Palma de Mallorca, Illles Balears 07122
Spain

Jorge B. Guillen

UESAN ( email )

Alonso de Molina 1652
Lima 33
Peru

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
8
Abstract Views
458
PlumX Metrics