Tacit collusion in a non-repeated price competition game with a soft capacity constraint

Posted by D. Daniel Sokol

Marie-Laure Cabon-Dhersin (CREAM - Universite de Rouen) and Nicolas Drouhin (CES - CNRS Universite Paris I - Pantheon Sorbonne) have posted Tacit collusion in a non-repeated price competition game with a soft capacity constraint.

ABSTRACT: This paper analyses price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game generating a soft capacity constraint and implying a convex short term cost function in the second stage of the game. We show that tacit collusion is the only predictable result of the whole game i.e. the unique payoff-dominant pure strategy Nash equilibrium. Technically, this paper bridges the capacity constraint literature on price competition and that of the convex cost function.