Cheikbossian, Guillaume and Mahenc, Philippe (2012) Cooperation in the Presence of an Advantaged Outsider. TSE Working Paper, n. 13-390, Toulouse

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Abstract

This paper analyzes how the stability of the tacit cooperation within a fringe of sev-
eral identical ?rms is affected by the presence of a more e¢ cient ?rm which does not take part
in their cooperative agreement. The model assumes that the ?rms of the fringe adopt ?stick and
carrot?strategies à la Abreu (1986, 1988) to support cooperation, while the outside ?rm plays its
one-period best response function to these strategies, regardless of the history of play. Assuming
a linear demand function and constant marginal costs, we then obtain conditions for the coopera-
tion within the fringe to be sustainable and focus on the most cooperative symmetric punishment
(MCSP) that sustains cooperation. We show that the MCSP is harsher when the number of ?rms
involved in the agreement is relatively large or when their relative cost disadvantage is relatively
small. However, both a larger number of ?rms and a larger cost disadvantage make it more di¢ cult
to sustain the cooperation.

Available Versions of this Item

• Cooperation in the Presence of an Advantaged Outsider. (deposited 09 Jul 2014 17:34) [Currently Displayed]
  • On the Difficulty of Collusion in the Presence of a More Efficient Outsider. (deposited 23 May 2018 06:25)