Collusion with Capacity Constraints over the Business Cycle

Natalia Fabra

Industrial Organization from University Library of Munich, Germany

Abstract: This paper investigates the effect of capacity constraints on the sustainability of collusion in markets subject to cyclical demand fluctuations. In the absence of capacity constraints (i.e. a limiting case of our model), Haltiwanger and Harrington (1991) show that firms find it more difficult to collude during periods of decreasing demand. We find that this prediction can be overturned if firms' capacities are sufficiently small. Capacity constraints imply that punishment profits move procyclically, so that periods of increasing demand may lead to lower losses from cheating even if collusive profits are rising. Haltiwanger and Harrington's main prediction remains valid for su±ciently large capacities.

Keywords: Collusion; Capacity Constraints; Business Cycles (search for similar items in EconPapers)
JEL-codes: C73 E32 L13 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003-08-31
Note: Type of Document - pdf; prepared on PC; pages: 24 ; figures: included
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Related works:
Journal Article: Collusion with capacity constraints over the business cycle (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:0308001

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