Collusion sustainability with a capacity-constrained firm

Leonardo Madio and Aldo Pignataro

Oxford Economic Papers, 2024, vol. 76, issue 1, 227-249

Abstract: We study an infinitely repeated oligopoly game in which firms compete on quantity and one of them is capacity-constrained. We show that collusion sustainability is non-monotonic in the size of the capacity-constrained firm, which has little incentive to deviate from a cartel. We also present conditions for the emergence of a partial cartel, with the capacity-constrained firm being excluded by the large firms or self-excluded. In the latter case, we show under which circumstances the small firm induces a partial conspiracy that is Pareto-dominant. Implications for cartel identification and enforcement are finally discussed.

JEL-codes: D21 L13 L41 (search for similar items in EconPapers)
Date: 2024
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