Asymmetric Collusion with Growing Demand

Antonio Brandao, Joana Pinho and Helder Vasconcelos

Journal of Industry, Competition and Trade, 2014, vol. 14, issue 4, 429-472

Abstract: We characterize collusion sustainability in markets where demand growth triggers the entry of a new firm whose efficiency may be different from the efficiency of the incumbents. We find that the profit-sharing rule that firms adopt to divide the cartel profit after entry is a key determinant of the incentives for collusion (before and after entry). In particular, if the incumbents and the entrant are very asymmetric, collusion without side-payments cannot be sustained. However, if firms divide joint profits through bargaining and are sufficiently patient, collusion is sustainable even if firms are very asymmetric. Copyright Springer Science+Business Media New York 2014

Keywords: Collusion; Growing demand; Nash bargaining; Profit-sharing; K21; L11; L13 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Asymmetric collusion with growing demand (2013)
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DOI: 10.1007/s10842-013-0171-z

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