Abstract
This paper analyzes price collusion in a repeated game with two submarkets: a standard and a premium quality segment. Within this setting, we study four types of price-fixing agreement: (i) a segment-wide cartel in the premium submarket only, (ii) a segment-wide cartel in the standard submarket only, (iii) two segment-wide cartels, and (iv) an industry-wide cartel. We present a complete characterization of the collusive pricing equilibrium and examine the corresponding effect on market shares and welfare. Partial cartels operating in a sufficiently large segment lose market share and the industry-wide cartel prefers to maintain market shares at precollusive levels. The impact on consumer and social welfare critically depends on the cost of producing quality. Moreover, given that there is a cartel, more collusion can be beneficial for society as a whole.
Original language | English |
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Pages (from-to) | 293-323 |
Number of pages | 31 |
Journal | Journal of Public Economic Theory |
Volume | 24 |
Issue number | 2 |
Early online date | 24 Nov 2021 |
DOIs | |
Publication status | Published - Apr 2022 |
Keywords
- PRICE-COMPETITION
- CARTEL STABILITY