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Title:Endogenous Cartel Formation with Heterogeneous Firms PDF Logo
Authors:Bos, Iwan
Harrington, Joseph E.
Issue Date:2008
Series/Report no.:Working papers // the Johns Hopkins University, Department of Economics 544
Abstract:In the context of an infinitely repeated capacity-constrained price game, we endogenize the composition of a cartel when .rms are heterogeneous in their capacities. When .rms are sufficiently patient, there exists a stable cartel involving the largest .rms. A .rm with sufficiently small capacity is not a member of any stable cartel. When a cartel is not all-inclusive, colluding firms set a price that serves as an umbrella with non-cartel members pricing below it and producing at capacity. Contrary to previous work, our results suggest that the most severe coordinated e¡èects may come from mergers involving moderate-sized firms, rather than the largest or smallest firms.
Subjects:Collusion
Cartel Size
JEL:L1
L4
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, The Johns Hopkins University

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