Abstract

In a Cournot duopoly where firms incur a fixed cost for serving each market, collusion is easier to sustain with production quotas if the fixed cost is small enough, and with market sharing agreements if it is large enough.
   
    
 
 
  

      ! "!# $%$  !"
!&$ '$( %!  !)% $*!%$ +$! $  ! ,
"!# $ !  "!( -%  $ $*!%$ +$!
* "! %. .! %  $$! *$$ &  %,
 /* $! '$  %.  "!(  $& !! ! /%!
!$*  $' ! /* $!  !! $%$ % % !$ !%
&%! $*!%$ +$! )$& ! !$* * &%! "! ,
%. .! )$  ! !$*( - !  $)!%* )$!
*   %$ !!.% * ! .$) $!% %!
!!.% %!$** ) ) 0123(
4 %%! $%$# 5"! %. .!# $,
*!%$ 6$!# !% %!(
  4 711# 71
          
 !" 
     #$%  & "

1
 
      ! "!# $%$  !" !&$
*%!%! '$( %!   ! * !)% $*!%$ +$!
$  ! "!# $   !%  $ ! "! * $%!
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+$!3  ) /!%  !*%* % ! %!!9 ! $* '$ $'
$%$ 0"! %. .!3  $! ! ) ' :*( 
$);!%  % !%  % !$ $ ! !&$ '$ $' $%$# * !$
!* * &% $*%!%$ /% $%$ % % !$ !% &%!
$*!%$ +$! $ "! %. .!(
- %% * !$!% %!! $ $%$  % '$*
$ %,/%. ! &%! $*!%$ +$!( 5"! %. .!
 ! .%* !!!%$ '$ !%!! !$%!%  ! .$)%:!%$
$' "! * ! *.!%$ $' %*!% &% * !$ ) .!* $
!%!$% )% 0%%# $ !$%!%$  % * !%%!%3
 %* ! $ '$ /%%! $ %%%! "! %. .!(
<$ /# % %! 1 . .%*%# ! % $!%!%$ !$%!
!! !!4
=  !!%  !$  %,/%. !#  >(((? 
*% %*  ! $! )!& ! * . $! !$  %
 $!8 *%.!* ( >(((? ! %! %!#  "!,
%. !  ) $ $ !  .! $. 
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!% ( -%  % $  ! $!%. %
!%!$% !$ $ $! $ .%. $ %! $' &% !$
 !$ ) $!* !$ &% (@ 0% $!%!%$ !$%!#
13(
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%" $' "! %.#   &% * !$ ;$ $$$ $& %
$ !%!$%  !! !$ $! $ ! .$) $ "!(
 *"  .%! $  * # % 1# ! $ $%,
%$  !)%* !! ! !&$ $% * $!*  "! %.
.! '$   ) $%. !% $*, !% %!% !$ !% !,
*%!%$ $ "!#  $!%! &! $ '$ $  *
! %!* A%.*$ '$ ( ! & $ '$* !! $   #  !
$*, $* % $ !* * !* $ ! B$ "!8
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!% % &% %! * !)%* $*!%$ '%%!%(
5$ !# !
! *%%$ !" ) ! & $!%!%$ $%%$# % A$ $
) # C# % !" *$& ! . % $%#
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... It has long been understood that the existence of multiple markets creates the potential for market sharing; a collusive agreement in which each member of a cartel is assigned monopoly rights over a territory (see for example Edwards, 1955;Stigler, 1964). A common feature of market sharing models is that, when a firm deviates, it captures a share of its rival's market before its rival has the opportunity to respond (see for example Bernheim and Whinston, 1990;Gross and Holahan, 2003;Belleflamme and Bloch, 2008;Bond and Syropoulos, 2008). This may be a reasonable assumption for industries in which products are manufactured in a firm's home market prior to being transported for sale in foreign markets. ...
... Formally, firm i's participation stage action is a subset a t i ⊆ N . The inclusion of a market n ∈ a t i indicates that firm i will contest market n in period t, while n / ∈ a t i indicates that i will be absent from n. 4 BW (1990) (see also Belleflamme and Bloch, 2008) have a variant of their model where the costs of producing in a given market involve some fixed costs for the firm. However, they assume that if a firm is merely present in a market but does not produce, its costs are zero. ...
... In the case of Cournot competition, intensive margin collusion is more stable 10 An example in BW (1990) (see also Belleflamme and Bloch, 2008) considers the role that market specific fixed costs play in determining the structure of the optimal collusive agreement. BW show that a cartel may prefer a market sharing arrangement to avoid replicating fixed costs. ...
Article
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. Finally, we provide a theoretic foundation for the use of a "proportional response" enforcement mechanism.
... We build our notion on the premise that the deviating firms would expect the non-deviating firms to maintain the status-quo, i.e. by definition the non-deviating firms are assumed to be passive and, therefore, the market structures involving non-deviating players are not expected to change. Belleflamme and Bloch (2008) study conditions for sustainable cooperation between two firms in a symmetric two-market setting. Our work differs from theirs in that we allow for cartel formation among three firms in possibly asymmetric markets, i.e. cartels may be formed by fewer than all market participants and the two markets may differ in size. ...
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We study the role of communication in collusive market sharing. In a series of Cournot oligopoly experiments with multiple markets, we vary the information that firms can exchange: hard information—verifiable information about past conduct—and soft information—unbinding information about future conduct. We find that the effect of communication on the firms' ability to collude depends on the type of information available: while market prices increase only slightly with hard information the price raise due to soft information is substantial. Our results point to the types and contents of communication that should be of particular concern to antitrust authorities. This article is protected by copyright. All rights reserved
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This paper develops a spatial model to analyze the stability of a market sharing agreement between two firms. We find that the stability of the cartel depends on the relative market size of each firm, Collusion is not attractive for firms with a small home market, but the incentive for collusion increases when the firm's home market is getting larger relative to the home market of the competitor. The highest stability of a cartel and additionally the highest social welfare is found when regions are symmetric.
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This paper investigates the cooperative behavior in the two-player iterated prisoner’s dilemma (IPD) game with the consideration of income stream risk. The standard deviation of one-move payoffs for players is defined for measuring the income stream risk, and thus the risk effect on the cooperation in the two-player IPD game is examined. A two-population coevolutionary learning model, embedded with a niching technique, is developed to search optimal strategies for two players to play the IPD game. As experimental results illustrate, risk-averse players perform better than risk-seeking players in cooperating with opponents. In particular, in the case with short game encounters, in which cooperation has been demonstrated to be difficult to achieve in previous work, a high level of cooperation can be obtained in the IPD if both players are risk-averse. The reason is that risk consideration induces players to negotiate for stable gains, which lead to steady mutual cooperation in the IPD. This cooperative pattern is found to be quite robust against low levels of noise. However, with increasingly higher levels of noise, only intermediate levels of cooperation can be achieved in games between two risk-averse players. Games with risk-seeking players get to even lower cooperation levels. By comparing the players’ strategies coevolved with and without a high level of noise, the main reason for the reduction in the extent of cooperation can be explained as the lack of contrition and forgiveness of players in the high-noise interactions. Moreover, although increasing encounter length is helpful in improving cooperation in the noiseless and low-noise IPD, we find that it may enforce the absence of contrition and forgiveness, and thus make cooperation even more difficult in the high-noise games.
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We develop a supergame model of collusion between price-setting oligopolists located in different markets separated by trade costs. The firms produce a homogeneous good and sustain collusion based on territorial allocation of markets. We first show, in a much more general framework than some earlier literature, that a reduction in trade costs can paradoxically increase the sustainability of collusion. Then we prove a new paradox in which the scope for collusion may be enhanced by an increase in the number of firms. The paper thus highlights several hitherto unknown theoretical implications of collusion under price competition.
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This paper investigates the strategic formation of collusive networks in a dynamic framework. A collusive network is a set of market sharing agreements between firms in oligopolistic markets and auctions. Belleflamme and Bloch (Int Econ Rev 45(2):387–411, 2004) fully characterize the pairwise stable collusive networks in their symmetric model. In contrast, we characterize the collusive networks to which a dynamic network formation process converges with positive probability in the symmetric model. We provide a complete characterization for the case of the process that starts from a network with sufficiently few links. Moreover, we show that the process never cycles but always converges to a stable network. In addition, we discuss an asymmetric model where firms enjoy a home country advantage. We show that the expected number of collusive agreements may be reduced by an increase in the degree of the home country advantage. This implies that policies for discouraging entry may fail, and may lead to a decrease in expected social surplus.
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We analyze reciprocal market sharing agreements by which firms commit not to enter each other's territory in oligopolistic markets and procurement auctions. The set of market sharing agreements defines a collusive network. We characterize stable collusive networks when firms and markets are symmetric. Stable networks are formed of complete alliances, of different sizes, larger than a minimal threshold. Typically, stable networks display fewer agreements than the optimal network for the industry and more agreements than the socially optimal network. When firms or markets are asymmetric, stable networks may involve incomplete alliances and be underconnected with respect to the social optimum.
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We analyze reciprocal market sharing agreements by which firms commit not to enter each other's territory in oligopolistic markets and procurement auctions. The set of market sharing agreements defines a collusive network. We characterize stable collusive networks when firms and markets are symmetric. Stable networks are formed of complete alliances, of different sizes, larger than a minimal threshold. Typically, stable networks display fewer agreements than the optimal network for the industry and more agreements than the socially optimal network. When firms or markets are asymmetric, stable networks may involve incomplete alliances and be underconnected with respect to the social optimum. Copyright 2004 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
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In an infinitely repeated game, sellers employ a trigger strategy of mutual forbearance from invasion of each other's markets, stabilized against invasion by the threat of Bertrand pricing. Contrary to conventional static models, this article shows stability for a wide range of transportation costs and present value parameters, and that increases in transportation costs tend to destabilize the collusive agreement. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association