EconPapers    
Economics at your fingertips  
 

Collusive Agreements in Vertically Differentiated Markets

Marco Marini

No 258011, ETA: Economic Theory and Applications from Fondazione Eni Enrico Mattei (FEEM)

Abstract: This paper introduces a number of game-theoretic tools to model collusive agreements among firms in vertically differentiated markets. I firstly review some classical literature on collusion between two firms producing goods of exogenous different qualities. I then extend the analysis to a 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 pruning or proliferating 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 cartelisation always arises in equilibrium, with the bottom quality firm always belonging to the alliance.

Keywords: Research; Methods/; Statistical; Methods (search for similar items in EconPapers)
Pages: 34
Date: 2017-06-23
New Economics Papers: this item is included in nep-com, nep-cse and nep-gth
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/258011/files/NDL2017-029.pdf (application/pdf)

Related works:
Chapter: Collusive agreements in vertically differentiated markets (2018) 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:ags:feemth:258011

DOI: 10.22004/ag.econ.258011

Access Statistics for this paper

More papers in ETA: Economic Theory and Applications from Fondazione Eni Enrico Mattei (FEEM) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().

 
Page updated 2024-03-31
Handle: RePEc:ags:feemth:258011