Cartels and Search

Norman Ireland and Michael Waterson
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Norman Ireland: University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper unifies two significant but somewhat contradictory ideas. First, search costs potentially influence market price equilibria significantly; in many equilibria consumers do not search despite above-competitive prices. Second, cartels must guard against individual members offering lower prices, thereby creating incentives for consumers to search. We develop a simple framework, and then an example, in which whether search takes place depends upon the magnitude of search costs. Three potential equilibria result, dependent upon model parameters. These include a tacit cartel agreement exhibiting price variance and volatility. A policy conclusion is that such market characteristics do not always guarantee non-cartelisation.

Pages: 36 pages
Date: 2006
New Economics Papers: this item is included in nep-com and nep-ind
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https://warwick.ac.uk/fac/soc/economics/research/w ... s/2006/twerp_770.pdf

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Working Paper: Cartels and Search (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:770

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