The Neglected Effects of Demand Characteristics on the Sustainability of Collusion

Posted by D. Daniel Sokol

Andrea Gallice, University of Siena - Economics, discusses The Neglected Effects of Demand Characteristics on the Sustainability of Collusion.

ABSTRACT: According to traditional IO models, the characteristics of market demand (intercept, slope, elasticity) and of technology (level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. The paper modifies this counterintuitive result by showing that all the above mentioned factors do affect the sustainability of collusion when prices are assumed to be discrete rather than continuous. The sign of these effects is unambiguous. Their magnitude varies greatly: in some cases it is totally negligible, in others it becomes extremely relevant.