Collusion and Customization

Francisco Martínez-Sánchez ()
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Francisco Martínez-Sánchez: Departamento de Métodos Cuantitativos para la Economía y la, Empresa, Universidad de Murcia, 30100 Murcia, Spain
Authors registered in the RePEc Author Service: Francisco Martínez-Sánchez

International Game Theory Review (IGTR), 2020, vol. 22, issue 04, 1-11

Abstract: We analyze the effect of customizing a product on the ability of firms to tacitly collude on prices. Following [Bar-Isaac et al. [2014] Targeted product design: Locating inside the Salop circle, Mimeo], we allow firms to be located inside the circle in the Salop model [Salop, S. [1979] Monopolistic competition with outside goods, Bell J. Econ., 10(1), 141–156]. Our analysis shows that the effect of product customization on the stability of collusion depends on the sensitivity of consumers’ utility to the degree of customization. In particular, if that sensitivity is low enough, then greater customization facilitates collusion. Otherwise, greater customization hinders collusion if consumers value the product little.

Keywords: Collusion; customization; the Salop model (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S0219198920500073

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