Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56581
Authors: 
Paha, Johannes
Year of Publication: 
2010
Series/Report no.: 
Joint discussion paper series in economics 07-2010
Abstract: 
In many cases, collusive agreements are formed by asymmetric firms and include only a subset of the firms active in the cartelized industry. This paper endogenizes the process of cartel formation in a numeric simulation model where firms differ in marginal costs and production technologies. The paper models the incentive to collude in a differentiated products Bertrand-oligopoly. Cartels are the outcomes of a dynamic formation game in mixed strategies. I find that the Nash-equilibrium of this complex game can be obtained efficiently by a Differential Evolution stochastic optimization algorithm. It turns out that large firms have a higher probability to collude than small firms. Since firms' characteristics evolve over time, the simulation is used to generate data of costs, prices, output-quantities, and profits. This data forms the basis for an evaluation of empirical methods used in the detection of cartels.
Subjects: 
collusion
cartel detection
cartel formation
differential evolution
heuristic optimization
industry simulation
JEL: 
C51
C69
C72
D43
L12
L13
L40
Document Type: 
Working Paper

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