Collusion at the extensive margin

Martin Byford and Joshua Gans

International Journal of Industrial Organization, 2014, vol. 37, issue C, 75-83

Abstract: We augment the multi-market collusion model of Bernheim and Whinston (1990) by allowing for firm entry into, and exit from, individual markets. We show that this gives rise to a new mechanism by which a cartel can sustain a collusive agreement: Collusion at the extensive margin whereby firms collude by avoiding entry into each other's markets or territories. We characterise parameter values that sustain this type of collusion and identify the assumptions where this collusion is more likely to hold than its intensive margin counterpart. Specifically, it is demonstrated that where duopoly competition is fierce collusion at the extensive margin is always sustainable. Finally, we provide a theoretic foundation for the use of a “proportional response” enforcement mechanism.

Keywords: Collusion; Credible threats; Proportional response; Multi-market contact (search for similar items in EconPapers)
JEL-codes: C73 L41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:37:y:2014:i:c:p:75-83

DOI: 10.1016/j.ijindorg.2014.08.001

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