Thursday, February 17, 2011
Posted by D. Daniel Sokol
Yoshio Kamijo (Waseda University) and Shigeo Muto (Tokyo Institute of Technology) describe Farsighted Coalitional Stability of a Price Leadership Cartel.
ABSTRACT: This paper analyzes the farsighted behaviour of firms that form a dominant price leadership cartel. We consider stability concepts such as the farsighted core, the farsighted stable sets, and the largest consistent set. We show that: (i) the farsighted core is either an empty set or a singleton set of the grand cartel; (ii) any Pareto efficient cartel is itself a farsighted stable set; and (iii) the set of cartels in which fringe firms enjoy higher profits than the firms in the minimal Pareto efficient cartel is the largest consistent set.