Product differentiation, price discrimination and collusion

Stefano Colombo ()

No ief0085, DISCE - Quaderni dell'Istituto di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: The existing literature which analyses the relationship between the product differentiation degree and the sustainability of a collusive agreement on price assumes that firms cannot price discriminate, and concludes that there is a negative relationship between the product differentiation degree and the critical discount factor. This paper, in contrast, assumes that firms are able to price discriminate. Within the Hotelling framework, three different collusive schemes are studied: optimal collusion on discriminatory prices; optimal collusion on a uniform price; collusion not to discriminate. We obtain that the critical discount factor of the first and the third collusive scheme does not depend on the product differentiation degree, while the critical discount factor of the second collusive scheme depends positively on the product differentiation degree. Moreover, we show that suboptimal collusion is more difficult to sustain than optimal collusion.

Keywords: Horizontal differentiation; Price discrimination; Tacit collusion (search for similar items in EconPapers)
JEL-codes: D43 L11 L41 (search for similar items in EconPapers)
Pages: nn pages 36
Date: 2009-03
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Product differentiation, price discrimination and collusion (2010)
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