EconPapers    
Economics at your fingertips  
 

Collusive agreements in vertically differentiated markets

Marco Marini

Chapter 3 in Handbook of Game Theory and Industrial Organization, Volume II, 2018, pp 34-56 from Edward Elgar Publishing

Abstract: This survey introduces a number of game-theoretic tools to model collusive agreements among firms in vertically differentiated markets. I first review some classical literature on collusion between two firms producing goods of exogenous different qualities. I then extend the analysis to an n-firm vertically differentiated market to study the incentive to form either a whole market alliance or partial alliances made of subsets of consecutive firms in order to collude in prices. Within this framework I explore the price behaviour of groups of colluding firms and their incentive to either prune or proliferate their products. It is shown that a selective pruning within the cartel always occurs. Moreover, by associating a partition function game to the n-firm vertically differentiated market, it can be shown that a sufficient condition for the cooperative (or coalitional) stability of the whole industry cartel is the equidistance of firms’ products along the quality spectrum. Without this property, and in presence of large quality differences, collusive agreements easily lose their stability. In addition, introducing a standard infinitely repeated game approach, I show that an increase in the number of firms in the market may have contradictory effects on the incentive of firms to collude: it can make collusion easier for bottom and intermediate firms and harder for the top-quality firm. Finally, by means of a three-firm example, I consider the case in which alliances can set endogenously qualities, prices and number of variants on sale. I show that, in every formed coalition, (i) market pruning dominates product proliferation and (ii) partial cartelization always arises in equilibrium, with the bottom-quality firm always belonging to the alliance.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.elgaronline.com/view/9781788112772.00009.xml (application/pdf)

Related works:
Working Paper: Collusive Agreements in Vertically Differentiated Markets (2017) Downloads
Working Paper: Collusive Agreements in Vertically Differentiated Markets (2017) Downloads
Working Paper: Collusive Agreements in Vertically Differentiated Markets (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:elg:eechap:17978_3

Ordering information: This item can be ordered from
http://www.e-elgar.com

Access Statistics for this chapter

More chapters in Chapters from Edward Elgar Publishing
Bibliographic data for series maintained by Darrel McCalla ().

 
Page updated 2024-05-14
Handle: RePEc:elg:eechap:17978_3