Exchange Agreements Facilitate Collusion

Hans-Theo Normann

German Economic Review, 2001, vol. 2, issue 2, 113-125

Abstract: A duopoly model with quantity competition is analyzed in which firms collude in two markets. There is specialization in production in order to promote efficiency. Firms may then either exclusively market one good each, or they may agree to exchange goods and cross‐supply a part of the production to the other firm. It is shown that, compared to specialization in marketing, positive exchanges of goods relax the incentive constraints that limit the extent of collusion.

Date: 2001
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German Economic Review is currently edited by Bernhard Felderer, Joseph F. Francois, Ivo Welch, Urs Schweizer and David E. Wildasin

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