Two Noncooperative Equilibria for a Collusive Duopoly With a Finite Lifespan

Robert Rothschild

Journal of Institutional and Theoretical Economics (JITE), 1997, vol. 153, issue 2, 356-

Abstract: This paper addresses the problem of maintaining collusion in a differentiated duopoly with a finite lifespan. Using a trigger strategy devised by FRIEDMAN [1985], we identify two necessary noncooperative equilibria, and show that when both the prospective deviant and punisher are free to choose between price and output as their strategic variables the dominant noncooperative equilibrium is Cournot while the dominated noncooperative equilibrium is asymmetric in the two variables. We show that, under certain conditions on product substitutability, there exist plausible discount factors which will sustain collusion for almost the entire life of the cartel.

JEL-codes: D43 (search for similar items in EconPapers)
Date: 1997
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