Collusion in quality-segmented markets

I. Bos, M.A. Marini*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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 languageEnglish
Number of pages31
JournalJournal of Public Economic Theory
DOIs
Publication statusE-pub ahead of print - 24 Nov 2021

Keywords

  • PRICE-COMPETITION
  • CARTEL STABILITY

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