Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges

Christiaan Hogendorn (chogendorn@wesleyan.edu)

No 2006-002, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: In many capacity-intensive industries (e.g. electricity, bandwidth), exchanges allow firms to buy and sell wholesale capacity before selling on the retail market. This allows firms to smooth demand shocks, but it also raises suspicions that exchanges facilitate tacit collusion to limit capacity investment. This paper models investment and exchange in a one-shot game and in a repeated game with tacit collusion. It finds that the presence of the exchange does not reduce total capacity investment, and thus does not raise consumer prices. In fact, the exchange may make it more difficult to sustain tacit collusion.

Keywords: capacity investment; capacity exchanges; business to business exchanges; tacit collusion (search for similar items in EconPapers)
Pages: 22 pages
Date: 2006-01
New Economics Papers: this item is included in nep-com and nep-fmk
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Related works:
Journal Article: Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:wes:weswpa:2006-002

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