Antitrust & Competition Policy Blog

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

Monday, May 10, 2021

Collusion Sustainability with a Capacity Constrained Firm

Collusion Sustainability with a Capacity Constrained Firm

Leonardo Madio

University of Padova - Department of Economics and Management; CESifo (Center for Economic Studies and Ifo Institute)

Aldo Pignataro

Italian Regulatory Authority for Energy, Networks and Environment (ARERA)

Abstract

We study an infinitely repeated oligopoly game in which firms compete on quantity and one of them is capacity constrained. We show that collusion sustainability is non-monotonic in the size of the capacity constrained firm, which has less incentive to deviate from a cartel. We also present conditions for the emergence of a partial cartel, with the capacity constrained firm being excluded by the large firms or self-excluded. In the latter case, we show under which circumstances the small firm induces a partial conspiracy that is Pareto-dominant. Implications for cartel identification and enforcement are finally discussed.

https://lawprofessors.typepad.com/antitrustprof_blog/2021/05/collusion-sustainability-with-a-capacity-constrained-firm.html

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