Partial collusion with asymmetric cross-price effects

Savorelli, Luca (2012) Partial collusion with asymmetric cross-price effects. Bologna: Dipartimento di Scienze economiche DSE, p. 17. DOI 10.6092/unibo/amsacta/4527. In: Quaderni - Working Paper DSE (715). ISSN 2282-6483.
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Abstract

Asymmetries in cross-price elasticities have been demonstrated by several empirical studies. In this paper we study from a theoretical stance how introducing asymmetry in the substitution effects influences the sustainability of collusion. We characterize the equilibrium of a linear Cournot duopoly with substitute goods, and consider substitution effects which are asymmetric in magnitude. Within this framework, we study partial collusion using Friedman (1971) solution concept. Our main result shows that the interval of quantities supporting collusion in the asymmetric setting is always smaller than the interval in the symmetric benchmark. Thus, the asymmetry in the substitution effects makes collusion more difficult to sustain. This implies that previous Antitrust decisions could be reversed by considering the role of this kind of asymmetry.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Savorelli, Luca
Keywords
asymmetry, substitutes, Cournot duopoly, collusion, folk theorem
Subjects
ISSN
2282-6483
DOI
Deposit date
04 Feb 2016 08:44
Last modified
04 Feb 2016 08:44
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