Sustaining collusion in markets with entry driven by balanced growth

• Type: Article in International Scientific Journal
• Date: 2016

Authors

João Correia-da-Silva (Author) FEP; Joana Pinho (Author) FEP; Vasconcelos, H (Author) Other

Journal

Title: Journal of Economics/ Zeitschrift fur Nationalokonomie

Vol. 118

Pages: 1-34

ISSN: 0931-8658

Publisher: Springer Nature

Indexing

ISI Web of Knowledge - 4 Citations

Scopus - 4 Citations

Other information

Authenticus ID: P-00G-WWH

DOI: 10.1007/s00712-015-0464-2

Abstract (EN): This paper studies the sustainability of collusion in markets where growth is not restricted to occur at a constant rate and may trigger future entry. Entry typically occurs later along the punishment path than along the collusive path (since profits are lower in the former case), and may not even occur along the punishment path. The possibility of delaying or even deterring entry may, therefore, constitute an additional incentive for deviating just before entry is supposed to occur along the collusive path. If firms set quantities and revert to Cournot equilibrium after a deviation, this incentive more than compensates for the fact that there are more firms after entry, making collusion harder to sustain before entry than after entry. If, instead, firms set prices or use optimal penal codes, deterring entry by breaking the cartel is not profitable, and thus collusion is harder to sustain after entry than before entry. The proposed model encompasses and explains conflicting results derived in the extant literature under more restrictive settings, and derives some novel results.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 34