Wednesday, April 22, 2015
Sugata Marjit, Centre for Studies in Social Sciences, Calcutta and GEP, University of Nottingham, UK, Arijit Mukherjee, Nottingham University Business School, and Lei Yang, Hong Long Polytechnic University provide thoughts On the Sustainability of Product Market Collusion under Credit Market Imperfection.
ABSTRACT: We study the implication of credit constraints for the sustainability of product market collusion in a bank financed Cournot duopoly when firms face an imperfect credit market. We consider two situations without or with credit rationing. When there is no credit rationing moderately higher cost of external finance may affect the degree of collusion, but a substantial increase keeps it unaffected. Permanent adverse demand shock in this set up does not affect the possibility of collusion, but may aggravate the finance constraint and eventually lead to collusion. We also discuss the case with credit rationing.