The role of debt and bankruptcy statutes in facilitating tacit collusion

Julie Hunsaker
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Julie Hunsaker: Department of Economics, Wayne State University, Detroit, MI 48202, USA, Postal: Department of Economics, Wayne State University, Detroit, MI 48202, USA

Managerial and Decision Economics, 1999, vol. 20, issue 1, 9-24

Abstract: Using a two-period model this paper examines the quantity decisions of leveraged duopolists that are vulnerable to bankruptcy in the first period. When the firms have symmetric costs, a bankrupt firm reorganizes under Chapter 11. If a Chapter 11 firm experiences marginal cost relief, each firm produces a collusive output in period one in order to prevent its rival's financial demise. When the firms have asymmetric costs, the less efficient firm is liquidated under Chapter 7 upon bankruptcy. A predatory equilibrium exists, whereby the inefficient firm is driven from the market. Copyright © 1999 John Wiley & Sons, Ltd.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:20:y:1999:i:1:p:9-24

DOI: 10.1002/(SICI)1099-1468(199902)20:1<9::AID-MDE916>3.0.CO;2-#

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