Monday, September 21, 2009
Posted by D. Daniel Sokol
Francisco Martínez-Sánchez (Universidad de Alicante) offers his thoughts on Collusion, competition and piracy.
ABSTRACT: In this paper we analyze firms' ability to tacitly collude on prices in an infinitely repeated duopoly game of vertical product differentiation. We show that firms collude if and only if their discount factor is high enough, i.e. if they value future profits sufficiently. We also show that a lower cost of copying facilitates collusion but that a higher quality of the copy hinders collusion. Thus, the overall effect of these new characteristics of copies made by consumers is ambiguous.