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On the relationship between product substitutability and tacit collusion
Author(s) -
Tyagi Rajeev K.
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(199909)20:6<293::aid-mde941>3.0.co;2-t
Subject(s) - tacit collusion , collusion , microeconomics , economics , product (mathematics) , demand curve , function (biology) , industrial organization , mathematics , geometry , evolutionary biology , biology
This paper examines the effect of increased product substitutability on quantity‐setting firms’ ability to sustain tacit collusion in a market. It uses a general demand function and the trigger strategy of Friedman (Friedman JW. 1971. A non‐cooperative equilibrium for supergames. Review of Economic Studies 38: 1–12) to show that while increased product substitutability hinders sustainability of tacit collusion in the case of linear and concave demand functions, it may either hinder or facilitate firms’ ability to sustain tacit collusion in the case of convex demand functions. Thus, this paper adds to the growing view that one must use a case‐by‐case analysis in judging whether firms in more homogenous product markets find it easier or harder to tacitly collude. Copyright © 1999 John Wiley & Sons, Ltd.