Cartels and search
Ireland, Norman J. and Waterson, Michael, 1950- (2006) Cartels and search. Working Paper. Coventey: University of Warwick, Department of Economics. (Warwick economic research papers).
WRAP_ireland_twerp_770.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
This paper unifies two significant but somewhat contradictory ideas. First, search costs potentially influence market price equilibria significantly; in many equilibria consumers do not search despite above-competitive prices. Second, cartels must guard against individual members offering lower prices, thereby creating incentives for consumers to search. We develop a simple framework, and then an example, in which whether search takes place depends upon the magnitude of search costs. Three potential equilibria result, dependent upon model parameters. These include a tacit cartel agreement exhibiting price variance and volatility. A policy conclusion is that such market characteristics do not always guarantee non-cartelisation.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HF Commerce
H Social Sciences > HB Economic Theory
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Searching behavior, Cartels, Commodity control, Competition, Industrial concentration|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventey|
|Number of Pages:||36|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|References:||S. Albaek, P. Mollgaard, P. Overgaard, (1997), “Government assisted oligopoly coordination? A concrete case.” Journal of Industrial Economics v45, n4 (December 1997): 429-43. S. Anderson and R. Renault, (1999), “Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model”, RAND Journal of Economics, 30, 719-735. Diamond, P., (1971), “A model of price adjustment”, Journal of Economic Theory, 3, 156-168. Grout, P. and S. Sonderegger, (2005) “Predicting cartels”, Economic Discussion Paper OFT 773, March, Office of Fair Trading, London. Harrington, J., (2005) “Detecting cartels”, Mimeo, Johns Hopkins, March. Johnson, J.P. and D.P. Myatt, (2006) “On the simple economics of advertising, marketing and product design”, American Economic Review, 96, 756-784. Lancaster, K., (1968) Mathematical Economics, Macmillan: New York Overgaard, P. and P. Mollgaard, (2005) “Information exchange, market transparency and dynamic oligopoly”, Discussion Paper 2005-11, Centre for Industrial Economics, University of Copenhagen. Shilony, Y. (1977) “Mixed pricing in oligopoly”, Journal of Economic Theory, 14, 373-388. Stiglitz, J.E. (1979) “Equilibrium in product markets with imperfect information”, American Economic Review (p&p), 69, 2, 339-345. X. Vives (1999) Oligopoly Pricing: Old Ideas and New Tools, MIT Press.|
Actions (login required)