Cartel Stability by a Margin

34 Pages Posted: 19 Mar 2018 Last revised: 20 Nov 2019

See all articles by Timo Klein

Timo Klein

Utrecht University School of Economics; Oxera Consulting LLP

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute

Date Written: June 1, 2019

Abstract

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

Klein, Timo and Klein, Timo and Schinkel, Maarten Pieter, Cartel Stability by a Margin (June 1, 2019). Amsterdam Law School Research Paper No. 2018-06, Amsterdam Center for Law & Economics Working Paper No. 2018-02, Available at SSRN: https://ssrn.com/abstract=3142025 or http://dx.doi.org/10.2139/ssrn.3142025

Timo Klein (Contact Author)

Utrecht University School of Economics ( email )

Vredenburg 138
Utrecht, 3511 BG
Netherlands

Oxera Consulting LLP ( email )

Alfred Street
Oxford OX1 4EH
United States

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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