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Article history: Received: July 5, 2017 Received in revised format: October 10, 2017 Accepted: February 12, 2018 Available online: February 12, 2018 This study examines the properties of the downward-sloping region of the linear supply function equilibrium (cartel case), which has not been considered in the literature. In simple duopoly settings, we find two regions, depending on the cartel type. Specifically, in a tight cartel, fiercer competition yields higher profits to firms, but the equilibrium is unstable. Instead, in the case of a loose cartel, fiercer competition yields lower profits, and the equilibrium is stable. Thus, in our framework, individual firms’ profits as a stable equilibrium are maximized not in a pure cartel, but rather in a somewhat weak cartel. This result sheds lights on the situations policymakers should focus on while monitoring cartels. © 2018 by the authors; licensee Growing Science, Canada.

Downward-sloping linear supply function equilibrium in duopoly