Collusion under product differentiation

The present model analyses the possibility of stable cartels under vertical and horizontal product differentiation in the presence of cost asymmetry. This possibility is lesser for an agreement that allows the lower quality product to be produced when the quality difference (net of cost) increases o...

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Bibliographic Details
Published in:Journal of economics (Vienna, Austria) Austria), 2024-06, Vol.142 (1), p.1-43
Main Authors: Sen, Neelanjan, Tandon, Urvashi, Biswas, Rajit
Format: Article
Language:English
Subjects:
Agreements
Breweries
Cartels
Collusion
Differentiation
Economic analysis
Economic models
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Macroeconomics/Monetary Economics//Financial Economics
Microeconomics
Payments
Product differentiation
Public Finance
Social and Behav. Sciences
Welfare
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Summary:The present model analyses the possibility of stable cartels under vertical and horizontal product differentiation in the presence of cost asymmetry. This possibility is lesser for an agreement that allows the lower quality product to be produced when the quality difference (net of cost) increases or the level of horizontal product differentiation decreases. However, if side payments are allowed, and the cartel agreement does not allow the lower quality product to be produced, the result changes. In this second situation, the possibility of a stable cartel falls if the quality difference (net of cost) falls or the horizontal product differentiation increases. Welfare may increase after cartel formation if the lower quality good is not produced in the presence of side payments.
ISSN:0931-8658
1617-7134
DOI:10.1007/s00712-023-00852-9