Tuesday, December 11, 2012
Posted by D. Daniel Sokol
ADITYA BHATTACHARJEA (Department of Economics, Delhi School of Economics, Delhi, India) and UDAY BHANU SINHA (Department of Economics, Delhi School of Economics, Delhi, India) describe Multi-market Collusion with Territorial Allocation.
ABSTRACT: This paper develops a supergame model of collusion between price-setting oligopolists located in different markets separated by trade costs. The firms produce a homogenous good and sustain collusion based on territorial allocation of markets. We first show, in a more general framework than some earlier literature, that a reduction in trade costs can paradoxically increase the sustainability of collusion. Then we prove a new paradox where the scope for collusion may be enhanced by an increase in the number of firms. We discuss several implications for trade and antitrust policy in this context.