Thursday, December 27, 2012

Collusive market sharing with spatial competition

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.

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