Does cartel leadership facilitate collusion?

Posted by D. Daniel Sokol

Marc Escrihuela-Villar (Universitat de les Illes Balears) asks Does cartel leadership facilitate collusion?

ABSTRACT: We discuss the implications of a Stackelberg sequence of play between a cartel and the fringe. We consider two different approaches to collusion: (i) one-stage static model and (ii) a multi-period oligopoly model. Our main result is that in the static model with quantity-setting firms a stable cartel only exist when cartel firms behave as a Stackelberg leader. It is also shown that in the supergame approach the cartel is always more easily sustained with the leadership than in the simultaneous-moves game. The opposite result is obtained in a price-setting supergame with differentiated products.