Bargaining in Collusive Markets

Ola Andersson

No 2006:21, Working Papers from Lund University, Department of Economics

Abstract: In this paper we investigate collusion in an infinitely repeated Bertrand duopoly where firms have different discount factors. In order to study how a collusive agreement is reached we model the equilibrium selection as an alternating-offer bargaining game. The selected equilibrium has several appealing features: First, it is efficient in the sense that it entails immediate agreement on the monopoly price. Second, the equilibrium shows how discount factors affect equilibrium market shares. A comparative statics analysis on equilibrium market shares reveals that changes in discount factors may have ambiguous effects on market shares.

Keywords: Bargaining; different discount factors; explicit collusion; market shares (search for similar items in EconPapers)
JEL-codes: C72 D43 L11 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
Date: 2006-11-14
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