Cartel Stability by a Margin
34 Pages Posted: 19 Mar 2018 Last revised: 20 Nov 2019
Date Written: June 1, 2019
We revisit classic cartel stability theory to show how comparative statics on sustainability change when firms require a margin before colluding. Such a margin can compensate, for instance, for the cost of colluding, antitrust liabilities or the risk of cartel breakdown. We show that the cartel margin increases the effect on the scope for stable cartels of the gains from collusion, relative to the gains from deviation. This provides new unambiguous comparative statics within specified ranges. More specifically, we find that with the margin requirement, the scope for collusion generally increases under lower industry marginal cost and less product differentiation. Implications for competition policy include a focus in enforcement on standardized product and low input cost industries.
Keywords: cartel, stability, marginal cost, product differentiation
JEL Classification: K21, L13, L41
Suggested Citation: Suggested Citation