A note on cartel stability and endogenous sequencing with tacit collusion

Abstract

We use the concept of cartel stability defined by d 'Aspremont et al. (1983) to obtain that the sequence of play between the cartel and the fringe affects cartel stability in a quantity-competition setting where firms tacitly collude. We also prove that an endogenous sequence of play between a cartel and a fringe depends on the discount factor. If the discount factor is large enough, the cartel and the fringe simultaneously choose quantities since the stable cartel may contain more firms under simultaneous play than under cartel leadership. This is due to the fact that under simultaneous play cartel firms have incentives to participate in the cartel because otherwise no collusion is possible.JEL Classification: L11; L41; D43.

Endogenous cartel formation with heterogeneous firms

“…There is a pair of recent articles which do endogenize cartel composition in the context of an infinitely repeated game. Escrihuela‐Villar (2008a, 2009) examines an infinitely repeated quantity setting with identical firms and homogeneous goods 4 . Similar to Compte et al (2002) and Vasconcelos (2005), the collusive outcome is assumed to be the joint profit maximum (given the cartel size).…”

Internal and External Cartel Stability: Numerical Solutions

“…For instance, with n = 31 and e = 1, we find 9/31, respectively 5/31 k-firms with e = 3, while they find 12/31 and 8/31. Finally, my estimates are much lower than Shaffer (1995) and Escrihuela-Villar (2008), as implied by their proposed conditions.…”

“…It is noteworthy, as Shaffer argues, that the values of parameters do not influence these conditions. A similar model was used by Escrihuela-Villar (2008), arguing that, in stable cartels, the number of cartel firms with n ≥ 4 is independent from the parameters and is determined, either by 1 4 (1 + 3n − √ (n − 2)n − 7, or by the same condition plus one. Konishi and Lin (1999) modified Shaffer's model by assuming quadratic cost function, without a fixed part, and setting the slope of demand curve equal to unit.…”

Market collusion with joint harm and liability sharing

“…2 products 5 or airplane noise pollution. 6 Environmental liability cases are a prime example for the involvement of third-party victims in contrast to cases where consumers are harmed by defective products.…”