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ON THE SUSTAINABILITY OF COLLUSION IN A DIFFERENTIATED OLIGOPOLY WITH A CARTEL AND A FRINGE
Author(s) -
EscrihuelaVillar Marc,
Guillén Jorge
Publication year - 2014
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/boer.12023
Subject(s) - cartel , collusion , oligopoly , product differentiation , competition (biology) , economics , incentive , microeconomics , industrial organization , sustainability , product market , product (mathematics) , cournot competition , tacit collusion , ecology , geometry , mathematics , biology
We discuss the effects of the existence of non‐colluding (fringe) firms on cartel sustainability. We obtain, using trigger strategies, that with product differentiation collusion is always more easily sustained when firms compete in prices than when firms compete in quantities. This is true basically because (i) price competition is more intense than quantity competition, and (ii) fringe firms exacerbate the fact that cartel firms have more incentives to deviate from the agreement under quantity competition. This result reverses previous findings where, in the absence of fringe firms, product differentiation plays a crucial role in determining the effectiveness of price or quantity competition in sustaining collusion.