A Dynamic Oligopoly with Collusion and Price Wars

Chaim Fershtman () and Ariel Pakes

RAND Journal of Economics, 2000, vol. 31, issue 2, 207-236

Abstract: We provide a collusive framework with heterogeneity among firms, investment, entry, and exit. It is a symmetric-information model in which it is hard to sustain collusion when there is an active firm that is likely to exit in the near future. Numerical analysis is used to compare a collusive to a noncollusive environment. Only the collusive industry generates price wars. Also, the collusive industry offers both more and higher-quality products to consumers, albeit often at a higher price. The positive effect of collusion on variety and quality more than compensates for the negative effect of collusive prices, so that consumer surplus is larger with collusion.

Date: 2000
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Related works:
Working Paper: A Dynamic Oligopoly with Collusion and Price Wars (1999)
Working Paper: A Dynamic Oligopoly with Collusion and Price Wars (1999)
Working Paper: A Dynamic Oligopoly with Collusion and Price Wars (1998)
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