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Sustaining Collusion in Growing Markets

Helder Vasconcelos ()

No 6865, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The impact of demand growth on the collusion possibilities is investigated in a Cournot supergame where market growth may trigger future entry and the collusive agreement is enforced by the most profitable 'grim trigger strategies' available. It is shown that even in situations where perfect collusion can be sustained after entry, coping with a potential entrant in a market which is growing over time may completely undermine any pre-entry collusive plans of the incumbent firms. This is because, before entry, a deviation and the following punishment phase may become more attractive thanks to their additional effect in terms of delaying entry.

Keywords: Collusion; Demand Growth; Entry (search for similar items in EconPapers)
JEL-codes: D43 L13 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com and nep-reg
Date: 2008-06
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