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Collusion under risk aversion and fixed costs
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Bernhardt, Dan and Rastad, Mahdi (2016) Collusion under risk aversion and fixed costs. The Journal of Industrial Economics, 64 (4). pp. 808-834. doi:10.1111/joie.12111 ISSN 0022-1821.
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Official URL: http://doi.org/10.1111/joie.12111
Abstract
We analyze collusion under demand uncertainty by risk-averse cartels that care about the utility derived from profits. With sufficient risk aversion and non-trivial fixed operating costs, it becomes difficult for cartels to collusively restrict output both when demand is low and marginal dollars are highly valued, and when demand is high and potential defection profits are high: output relative to monopoly levels becomes a U-shaped function of demand. Greater risk aversion or higher fixed operating costs make collusion more difficult to support in recessions, but easier to support in booms.
Item Type: | Journal Article | ||||||||
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Journal or Publication Title: | The Journal of Industrial Economics | ||||||||
Publisher: | Wiley-Blackwell Publishing Ltd. | ||||||||
ISSN: | 0022-1821 | ||||||||
Official Date: | December 2016 | ||||||||
Dates: |
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Volume: | 64 | ||||||||
Number: | 4 | ||||||||
Page Range: | pp. 808-834 | ||||||||
DOI: | 10.1111/joie.12111 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Open Access (Creative Commons) | ||||||||
Date of first compliant deposit: | 16 February 2016 |
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