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Advantageous Semi‐Collusion
Author(s) -
Brod Andrew,
Shivakumar Ram
Publication year - 1999
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00098
Subject(s) - cartel , collusion , competition (biology) , production (economics) , consumer welfare , welfare , industrial organization , economics , microeconomics , business , market economy , ecology , biology
The textbook view that cartels increase industry profits and lower consumer welfare ignores the effects of competition in other activities. A revisionist view shows that when cartel members compete in other activities, i.e. when they semi‐collude, the cartel members may be worse off and consumers better off. Using a two‐stage model in which the non‐production activity is R&D and is subject to technological spillovers, we show that both the traditional and revisionist views can be wrong, that consumers and producers can both be made worse off, or both better off, by a semi‐collusive production cartel.