A dynamic approach to cartel formation

J. Kuipers*, N. Olaizola

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Web of Science)

Abstract

We study the endogenous formation of cartels from a dynamic point of view. First, we review some stability analyses from existing literature, which usually predict a rather small cartel as the outcome. We then study a dynamic model, in which firms can freely leave the cartel if they wish, and firms can enter the cartel if both the cartel and the firm so desire. We show that the dynamic process converges to a strongly stable cartel if one exists. Otherwise, the process does not converge, but during the process the cartel-size will never go below any size predicted by a stability analysis.

Original languageEnglish
Pages (from-to)397-408
Number of pages12
JournalInternational Journal of Game Theory
Volume37
Issue number3
DOIs
Publication statusPublished - Nov 2008

Keywords

  • Group decisions
  • Firm organization
  • Market structure
  • Static versus dynamic
  • PROOF NASH EQUILIBRIA
  • STABLE CARTELS
  • EXTERNALITIES
  • COALITIONS

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