Collusion in a Price-Quantity Oligopoly

Anita van den Berg, Iwan Bos

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

In the context of an infinitely repeated oligopoly game, we study collusion among firms that simultaneously choose prices and quantities. We compare a price cartel with a price-quota cartel and analyze when and why firms prefer the latter to the former. Output quota may be required to solve coordination and incentive problems when market demand is sufficiently elastic. If market demand is sufficiently inelastic, then the cartel faces a trade-off between increasing prices and the amount of costly overproduction. We find that a price cartel prices consistently below the monopoly price to mitigate excessive production. In this case, a quota arrangement allows firms to avoid overproduction and to sustain the monopoly price. From a policy perspective, our findings suggest that an overall price increase in conjunction with more stable prices and market shares is indicative of collusion in industries where production precedes sales and outputs are imperfectly observable. (C) 2016 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)159-185
Number of pages27
JournalInternational Journal of Industrial Organization
Volume50
DOIs
Publication statusPublished - Jan 2017

Keywords

  • Cartels
  • Price-quantity competition
  • Semi-collusion
  • EQUILIBRIUM
  • CARTEL
  • EXISTENCE
  • GAMES
  • INFORMATION
  • DUOPOLY
  • LYSINE
  • FIRMS

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