Partial collusion with asymmetric cross-price effects

Luca Savorelli ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: Asymmetries in cross-price elasticities have been demonstrated by several empirical studies. In this paper we study from a theoretical stance how introducing asymmetry in the substitution effects influences the sustainability of collusion. We characterize the equilibrium of a linear Cournot duopoly with substitute goods, and consider substitution effects which are asymmetric in magnitude. Within this framework, we study partial collusion using Friedman (1971) solution concept. Our main result shows that the interval of quantities supporting collusion in the asymmetric setting is always smaller than the interval in the symmetric benchmark. Thus, the asymmetry in the substitution effects makes collusion more difficult to sustain. This implies that previous Antitrust decisions could be reversed by considering the role of this kind of asymmetry.

JEL-codes: C72 D43 L13 (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-bec, nep-com and nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:715

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