Antitrust & Competition Policy Blog

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

Tuesday, July 11, 2017

Government-Leading Welfare-Improving Collusion

Haraguchi, Junichi and Matsumura, Toshihiro discuss Government-Leading Welfare-Improving Collusion.

ABSTRACT: We discuss government-leading welfare-improving collusion in a mixed duopoly. We formulate an infinitely repeated game in which a welfare-maximizing firm and a profit-maximizing firm coexist. The government proposes welfare-improving collusion and this is sustainable if both firms have incentives to follow it. We compare two competition structures-Cournot and Bertrand-in this long-run context. We find that Cournot competition yields greater welfare when the discount factor is sufficiently large, whereas Bertrand competition is better when the discount factor is small.

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