Cartel formation in Cournot competition with asymmetric costs: A partition function approach

Takaaki Abe ()
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Takaaki Abe: School of Political Science and Economics, Waseda University

No 1911, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: In this paper, we use a partition function form game to analyze cartel formation among firms in Cournot competition. We assume that a firm obtains a certain cost advantage that allows it to produce goods at a lower unit cost. We show that if the level of the cost advantage is “moderate”, then the firm with the cost advantage leads the cartel formation among the firms. Moreover, if the cost advantage satisfies another condition, then the formed cartel can also be stable in the sense of the core of a partition function form game. We also show that if the technology for the low-cost production can be copied, then the cost advantage may prevent a cartel from splitting.

Keywords: cartel formation; Cournot competition; partition function form game; stability (search for similar items in EconPapers)
JEL-codes: C71 L13 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2019-07
New Economics Papers: this item is included in nep-bec, nep-com and nep-gth
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