Sustainable Collusion on Separate Markets
CORE Discussion Paper No. 2006/59
18 Pages Posted: 28 Aug 2006
Date Written: June 2006
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: Suggested Citation