Cartel Formation in Cournot Competition with Asymmetric Costs: A Partition Function Approach

Takaaki Abe
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Takaaki Abe: School of Political Science and Economics, Waseda University, 1-6-1, Nishi-waseda, Shinjuku-ku, Tokyo 169-8050, Japan

Games, 2021, vol. 12, issue 1, 1-16

Abstract: In this paper, we use a partition function form game to analyze cartel formation among firms in Cournot competition. We assume that a firm obtains a certain cost advantage that allows it to produce goods at a lower unit cost. We show that if the level of the cost advantage is “moderate”, then the firm with the cost advantage leads the cartel formation among the firms. Moreover, if the cost advantage is relatively high, then the formed cartel can also be stable in the sense of the core of a partition function form game. We also show that if the technology for the low-cost production can be copied, then the cost advantage may prevent a cartel from splitting.

Keywords: cartel formation; Cournot competition; partition function form game; stability (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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