Collusion, price dispersion, and fringe competition
Nicolas de Roos and
Vladimir Smirnov ()
No 2019-13, Working Papers from University of Sydney, School of Economics
We study the optimal behaviour of a cartel faced with fringe competition and imperfectly attentive consumers. Intertemporal price dispersion obfuscates consumer price comparison which aids the cartel through two channels: it reduces the effectiveness of free riding by the fringe; and it relaxes the cartel’s internal incentive constraints. Our theory explains the survival of a price-setting cartel in a homogeneous product market, provides a collusive rationale for sales and Edgeworth cycles, and characterises the cartel’s manipulation of its fringe rival through a double cut-off rule.
Keywords: Collusion; fringe competition; obfuscation; price dispersion (search for similar items in EconPapers)
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