Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Saturday, June 2, 2012

Cartel Pricing Dynamics, Price Wars and Cartel Breakdown

Posted by D. Daniel Sokol

Anton-Giulio Manganelli (Toulouse) discusses Cartel Pricing Dynamics, Price Wars and Cartel Breakdown.

ABSTRACT: This paper gives an unified explanation of some of the most widely known facts of the cartel literature: prices gradually rise, then remain constant, there can be price wars and some cartels break down. In this model consumers are loss averse and efficiency of a competitive fringe is not publicly observable. In the best collusive equilibrium, the price expectation can be so low that loss aversion makes consumers not buy at the maximal collusive price: firms then set a lower price that rises in time with consumers’ expectations. This increasing price path is bounded from above by the presence of the fringe. If the fringe sets a low price during a sufficient number of periods, there can be price wars and collusion can eventually break down.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/06/cartel-pricing-dynamics-price-wars-and-cartel-breakdown.html

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