Sustainable Collusion on Separate Markets

CORE Discussion Paper No. 2006/59

18 Pages Posted: 28 Aug 2006

See all articles by Paul Belleflamme

Paul Belleflamme

CORE and Louvain School of Management, UCL (Université Catholique de Louvain); CESifo (Center for Economic Studies and Ifo Institute)

Francis Bloch

University of Angers - Research Group in Quantitative Saving (GREQAM); National Center for Scientific Research (CNRS)

Date Written: June 2006

Abstract

When firms can supply several separate markets, collusion can take two forms. Either firms establish production quotas on all the markets, or they share markets. This paper compares production quotas and market sharing agreements in a Cournot duopoly where firms incur a fixed cost for serving serving each market. We show that there exists a threshold value of the fixed cost such that collusion is easier to sustain with production quotas below the threshold and with market sharing agreements above the threshold. These results are obtaines both under Nash reversion strategies and the globally optimal punishment strategies introduced by Abreu (1986).

Keywords: Implicit collusion, market sharing agreements, production quotas, optimal punishment

JEL Classification: L11, L12

Suggested Citation

Belleflamme, Paul and Bloch, Francis, Sustainable Collusion on Separate Markets (June 2006). CORE Discussion Paper No. 2006/59. Available at SSRN: https://ssrn.com/abstract=926525 or http://dx.doi.org/10.2139/ssrn.926525

Paul Belleflamme (Contact Author)

CORE and Louvain School of Management, UCL (Université Catholique de Louvain) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Francis Bloch

University of Angers - Research Group in Quantitative Saving (GREQAM) ( email )

Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France

National Center for Scientific Research (CNRS) ( email )

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Paris, 75006
France

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