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Cartel stability and product differentiation: how much do the size of the cartel and the size of the industry matter?

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Posada, Pedro (2000) Cartel stability and product differentiation: how much do the size of the cartel and the size of the industry matter? Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.556).

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Abstract

This article analyses how the degree of product differentiation, the size of the cartel and the size of the industry affect the stability of a cartel formed by any number of firms in an industry of any size. The paper considers a supergame-theoretic model to define stability. After a non-loyal member leaves the cartel, two possible reactions by the remaining members of the cartel are assumed. The first one is a trigger strategy where the cartel dissolves after one member has left and the second is one where the cartel keeps acting as a cartel with one member less. The work also extends the analysis to investigate the stability of the remaining cartel. The results indicate that the relation between the cartel stability and the degree of differentiation of the products depends considerably on the size of the cartel, the size of the industry and the reaction of the loyal members of the cartel.

Item Type:

Working or Discussion Paper (Working Paper)

Subjects:

H Social Sciences > HD Industries. Land use. Labor

Divisions:

Faculty of Social Sciences > Economics

Library of Congress Subject Headings (LCSH):

Cartels, Product differentiation, Competition, Stability

Series Name:

Warwick economic research papers

Publisher:

University of Warwick, Department of Economics

Place of Publication:

Coventry

Official Date:

17 April 2000

Dates:

Date	Event
17 April 2000	Published

Number:

No.556

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

Funder:

Consejo Nacional de Ciencia y Tecnología (Mexico) [Mexican Council for Science and Technology] (CONACYT)

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