Collusion, Price Dispersion, and Fringe Competition

57 Pages Posted: 27 Sep 2019 Last revised: 11 Nov 2020

See all articles by Nicolas de Roos

Nicolas de Roos

University of Sydney

Vladimir Smirnov

The University of Sydney - School of Economics

Date Written: September 16, 2019

Abstract

We study the optimal behaviour of a cartel faced with fringe competition and imperfectly attentive consumers. Intertemporal price dispersion obfuscates consumer price comparison which aids the cartel through two channels: it reduces the effectiveness of free riding by the fringe; and it relaxes the cartel’s internal incentive constraints. Our theory explains the survival of a price-setting cartel in a homogeneous product market, provides a collusive rationale for sales and Edgeworth cycles, and characterises the cartel's manipulation of its fringe rival through a double cut-off rule.

Keywords: L13, D83

JEL Classification: Collusion, fringe competition, obfuscation, price dispersion

Suggested Citation

de Roos, Nicolas and Smirnov, Vladimir, Collusion, Price Dispersion, and Fringe Competition (September 16, 2019). Available at SSRN: https://ssrn.com/abstract=3455785 or http://dx.doi.org/10.2139/ssrn.3455785

Nicolas De Roos (Contact Author)

University of Sydney ( email )

University of Sydney
Sydney NSW 2006
Australia

Vladimir Smirnov

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

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