Cartels and Search

Norman Ireland and Michael Waterson

No 269740, Economic Research Papers from University of Warwick - Department of Economics

Abstract: This paper unifies two significant but somewhat contradictory ideas. First, search costs potentially influence market price equilibria significantly; in many equilibria consumers do not search despite above-competitive prices. Second, cartels must guard against individual members offering lower prices, thereby creating incentives for consumers to search. We develop a simple framework, and then an example, in which whether search takes place depends upon the magnitude of search costs. Three potential equilibria result, dependent upon model parameters. These include a tacit cartel agreement exhibiting price variance and volatility. A policy conclusion is that such market characteristics do not always guarantee non-cartelisation.

Keywords: Agricultural and Food Policy; Marketing (search for similar items in EconPapers)
Pages: 36
Date: 2006-10-10
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Working Paper: Cartels and Search (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269740

DOI: 10.22004/ag.econ.269740

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