Cartel Pricing Dynamics, Price Wars and Cartel Breakdown

Manganelli, Anton Giulio (2012) Cartel Pricing Dynamics, Price Wars and Cartel Breakdown. TSE Working Paper, n. 12-309

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Official URL: http://tse-fr.eu/pub/25843

Abstract

This paper gives an unified explanation of some of the most widely known facts of the cartel
literature: prices gradually rise, then remain constant, there can be price wars and some cartels
break down. In this model consumers are loss averse and efficiency of a competitive fringe is not
publicly observable. In the best collusive equilibrium, the price expectation can be so low that loss
aversion makes consumers not buy at the maximal collusive price: firms then set a lower price that
rises in time with consumers’ expectations. This increasing price path is bounded from above by
the presence of the fringe. If the fringe sets a low price during a sufficient number of periods, there
can be price wars and collusion can eventually break down.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2012
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:26
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:25843
URI: http://publications.ut-capitole.fr/id/eprint/15292

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