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Consumer‐surplus‐enhancing collusion and trade
Author(s) -
Deltas George,
Salvo Alberto,
Vasconcelos Helder
Publication year - 2012
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2012.00167.x
Subject(s) - collusion , autarky , economic surplus , duopoly , oligopoly , cartel , microeconomics , economics , product differentiation , competition (biology) , product (mathematics) , imperfect competition , welfare , industrial organization , cournot competition , market economy , ecology , geometry , mathematics , biology
That collusion among sellers hurts buyers is a central tenet in economics. We provide an oligopoly model in which collusion can raise consumer surplus. A differentiated‐product duopoly operates in two geographically separated markets. Each market is home to a single firm, but can import, at a cost, from the foreign firm. Under some circumstances, a perfect cartel, relative to duopolistic competition, raises the price of the imported good and lowers the price of the home good. This raises welfare for most consumers and increases aggregate consumer surplus. A similar possibility result applies to autarky. Our analysis applies beyond the spatial setting.