Competition and Collusion with Strategic Inventories

Marium Ashfaq, Flavio Toxvaerd and Yi Wei

No 21232, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study collusive agreements in an infinite-horizon model in which firms invest in inventories of intermediate goods and compete in quantities of final goods. Stocks of inventories act as capacity constraints at the time of production, but can be replenished for future use through investment. Input stocks simultaneously impact firms’ ability to deviate from collusive agreements and their ability to punish such deviations and therefore have ambiguous effects on the sustainability of collusion. We characterize subgame perfect equilibria in grim trigger strategies in which firms potentially hold asymmetric excess inventories on the collusive path. We show that the sustainability of collusive agreements is non-monotone in inventory stocks. While holding excess capacity is costly and unproductive, the practice can improve firms’ ability to sustain anticompetitive agreements.

Keywords: Collusion (search for similar items in EconPapers)
JEL-codes: D25 L13 L41 (search for similar items in EconPapers)
Date: 2026-02
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP21232 (application/pdf)

Related works:
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:cpr:ceprdp:21232

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP21232

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().