Costly Collusion in Differatiated Industries

41 Pages Posted: 22 Aug 2004

See all articles by Ki-Eun Rhee

Ki-Eun Rhee

KDI School of Public Policy and Management

Raphael Thomadsen

Olin School - Washington University in St. Louis

Date Written: March 26, 2004

Abstract

This paper demonstrates that, under a set of weak assumptions, increased product differentiation will make it more difficult to sustain collusion when it is costly either to coordinate or to maintain collusion. These results contrast with the previous theoretical literature, which shows that, in the absence of these costs, greater differentiation can help foster collusion under some common models of product differentiation, but is consistent with the empirical literature that suggests that collusion tends to occur most among homogeneous firms. Further, we show that costly monitoring can be compatible with fully cooperative outcomes.

Keywords: Collusion, product differentiation, oligopoly, monitoring

JEL Classification: D40, L130, L140

Suggested Citation

Rhee, Ki-Eun and Thomadsen, Raphael, Costly Collusion in Differatiated Industries (March 26, 2004). Available at SSRN: https://ssrn.com/abstract=579361 or http://dx.doi.org/10.2139/ssrn.579361

Ki-Eun Rhee

KDI School of Public Policy and Management ( email )

P.O. Box 184
Seoul, 130-868
Korea, Republic of (South Korea)

Raphael Thomadsen (Contact Author)

Olin School - Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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