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When imperfect collusion is profitable

When imperfect collusion is profitable This paper studies cartel stability under the assumption that member firms can choose intermediate degrees of collusion as well as the joint-profit-maximizing solution in determining the quota to be produced by each firm. After showing that firms can increase the number of participants by decreasing the degree of collusion, I prove that individual members' profits are maximized when firms choose a (possibly low) degree of collusion such that all firms in the industry want to take part in the cartel. More precisely, if the number of firms in the industry is four or less, then all of them want to take part in the cartel even if the maximum degree of collusion is chosen (i.e., the monopoly output is produced); if the number of firms is greater than four, firms will still create an industry-wide cartel but they will produce a higher quantity than the monopoly output. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economics Springer Journals

When imperfect collusion is profitable

Journal of Economics , Volume 70 (3) – Feb 10, 2005

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References (17)

Publisher
Springer Journals
Copyright
Copyright © 1999 by Springer-Verlag
Subject
Economics; Economics, general; Economic Theory/Quantitative Economics/Mathematical Methods; Microeconomics; Macroeconomics/Monetary Economics//Financial Economics; Public Finance; Game Theory, Economics, Social and Behav. Sciences
ISSN
0931-8658
eISSN
1617-7134
DOI
10.1007/BF01224738
Publisher site
See Article on Publisher Site

Abstract

This paper studies cartel stability under the assumption that member firms can choose intermediate degrees of collusion as well as the joint-profit-maximizing solution in determining the quota to be produced by each firm. After showing that firms can increase the number of participants by decreasing the degree of collusion, I prove that individual members' profits are maximized when firms choose a (possibly low) degree of collusion such that all firms in the industry want to take part in the cartel. More precisely, if the number of firms in the industry is four or less, then all of them want to take part in the cartel even if the maximum degree of collusion is chosen (i.e., the monopoly output is produced); if the number of firms is greater than four, firms will still create an industry-wide cartel but they will produce a higher quantity than the monopoly output.

Journal

Journal of EconomicsSpringer Journals

Published: Feb 10, 2005

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