Thursday, December 27, 2012
Posted by D. Daniel Sokol
Kai Andree (University of Potsdam) and Mike Schwan have written on Collusive market sharing with spatial competition.
ABSTRACT: This paper develops a spatial model to analyze the stability of a market sharing agreement between two firms. We find that the stability of the cartel depends on the relative market size of each firm. Collusion is not attractive for firms with a small home market, but the incentive for collusion increases when the firm’s home market is getting larger relative to the home market of the competitor. The highest stability of a cartel and additionally the highest social welfare is found when regions are symmetric. Further we can show that a monetary transfer can stabilize the market sharing agreement.