Collusion at the Extensive Margin

Martin Byford and Joshua Gans

No 20163, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We augment the multi-market collusion model of Bernheim and Whinston (1990) by allowing for firm entry into, and exit from, individual markets. We show that this gives rise to a new mechanism by which a cartel can sustain a collusive agreement: Collusion at the extensive margin whereby firms collude by avoiding entry into each other's markets or territories. We characterise parameter values that sustain this type of collusion and identify the assumptions where this collusion is more likely to hold than its intensive margin counterpart. Specifically, it is demonstrated that Where duopoly competition is fierce collusion at the extensive margin is always sustainable. The model predicts new forms of market sharing such as oligopolistic competition with a collusive fringe, and predatory entry. We also provide a theoretic foundation for the use of a proportional response enforcement mechanism.

JEL-codes: C73 L41 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-com
Note: IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as Byford, Martin C. & Gans, Joshua S., 2014. "Collusion at the extensive margin," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 75-83.

Downloads: (external link)
http://www.nber.org/papers/w20163.pdf (application/pdf)

Related works:
Journal Article: Collusion at the extensive margin (2014)
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:nbr:nberwo:20163

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20163

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().