Cartel stability and profits under different reactions to entry in markets with growing demand

Joao Correia-da-Silva, Joana Pinho and Helder Vasconcelos

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: We study sustainability of collusion with optimal penal codes, in markets where demand growth may trigger the entry of a new firm. In contrast with grim trigger strategies, optimal penal codes make collusion easier to sustain before entry than after. We compare different reactions of the incumbents to entry in terms of: sustainability of collusion, incumbent’s profits, entrant’s profits, consumer surplus and social welfare. Surprisingly, the incumbent firms may prefer competition to collusion.

Keywords: Collusion; Demand growth; Optimal penal codes; Reactions to entry. (search for similar items in EconPapers)
JEL-codes: K21 L11 L13 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-03
New Economics Papers: this item is included in nep-bec, nep-com and nep-law
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:487

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