How should cartels react to entry triggered by demand growth?

Correia da silva, Joao, Pinho, Joana and Vasconcelos, Hélder (2015) How should cartels react to entry triggered by demand growth? The B. E. Journal of Economic Analysis & Policy (Contributions), 15 (1). pp. 209-255.

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Official URL: http://tse-fr.eu/pub/29822

Abstract

We study the sustainability of collusion with optimal penal codes in markets where demand growth triggers the entry of a new firm. In contrast to grim trigger strategies, optimal penal codes make collusion easier to sustain before entry than after. This conclusion is robust to changes in the number of entrants and to the consideration of price-setting instead of quantity-setting. A comparison is given between different reactions of the incumbents to entry in terms of sustainability of collusion, incumbents’ profits, entrant’s profits, consumer surplus and social welfare. One of our findings is that the incumbent firms may prefer competition to collusion.

Item Type: Article
Language: English
Date: January 2015
Refereed: Yes
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 05 Nov 2015 15:11
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:29822
URI: http://publications.ut-capitole.fr/id/eprint/18595

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