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The role of debt and bankruptcy statutes in facilitating tacit collusion
Author(s) -
Hunsaker Julie
Publication year - 1999
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/(sici)1099-1468(199902)20:1<9::aid-mde916>3.0.co;2-#
Subject(s) - bankruptcy , tacit collusion , statute , collusion , debt , business , tacit knowledge , monetary economics , economics , law and economics , industrial organization , finance , law , political science , computer science , knowledge management
Using a two‐period model this paper examines the quantity decisions of leveraged duopolists that are vulnerable to bankruptcy in the first period. When the firms have symmetric costs, a bankrupt firm reorganizes under Chapter 11. If a Chapter 11 firm experiences marginal cost relief, each firm produces a collusive output in period one in order to prevent its rival's financial demise. When the firms have asymmetric costs, the less efficient firm is liquidated under Chapter 7 upon bankruptcy. A predatory equilibrium exists, whereby the inefficient firm is driven from the market. Copyright © 1999 John Wiley & Sons, Ltd.