IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-18-00162.html
   My bibliography  Save this article

Endogenous input price and collusion sustainability in the output market

Author

Listed:
  • Carlo Capuano

    (University of Naples Federico II)

  • Iacopo Grassi

    (University of Naples Federico II)

Abstract

We analyze collusion sustainability in a duopoly where firms compete on quantities, labor is the only input, and the wage is endogenously defined by the match between the industry labor demand and an upward-sloping labor supply. In this framework, the equilibrium wage is positively correlated with the industry level of output and, to expand production, firms have to attract additional employees offering them a higher wage. We prove that the more sensitive to the industry demand of labor the wage is, the higher is the industry critical discount factor, i.e. the harder it is to sustain collusion. Thus, when the equilibrium wage is very sensitive to the industry demand of labor, punishment in the Nash reversion stage may be not credible; this makes collusion never sustainable.

Suggested Citation

  • Carlo Capuano & Iacopo Grassi, 2018. "Endogenous input price and collusion sustainability in the output market," Economics Bulletin, AccessEcon, vol. 38(2), pages 844-851.
    • Handle: RePEc:ebl:ecbull:eb-18-00162
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2018/Volume38/EB-18-V38-I2-P82.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    2. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    3. Sudipa Majumdar & Bibhas Saha, 1998. "Job security, wage bargaining and duopoly outcomes," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(4), pages 389-403.
    4. Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-541, August.
    5. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
    6. Van Gompel, Johan, 1995. "Optimal wage indexation with exchange rate uncertainty in an oligopolistic and unionized economy," Economics Letters, Elsevier, vol. 48(1), pages 37-45, April.
    7. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    8. Minas Vlassis & Stefanos Mamakis, 2014. "Welfare Improving Cartel Formation in a Union-Oligopoly Static Framework," Working Papers 1407, University of Crete, Department of Economics.
    9. Bertomeu, Jeremy, 2007. "Can labor markets help resolve collusion?," Economics Letters, Elsevier, vol. 95(3), pages 355-361, June.
    10. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carlo Capuano & Iacopo Grassi, 2019. "Upward-sloping labor supply, firing costs and collusion," Economics Bulletin, AccessEcon, vol. 39(1), pages 502-512.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carlo Capuano & Iacopo Grassi, 2019. "Upward-sloping labor supply, firing costs and collusion," Economics Bulletin, AccessEcon, vol. 39(1), pages 502-512.
    2. Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
    3. Marcel Canoy & Patrick Rey & Eric van Damme, 2004. "Dominance and Monopolization," Chapters, in: Manfred Neumann & Jürgen Weigand (ed.), The International Handbook of Competition, chapter 7, Edward Elgar Publishing.
    4. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    5. Panayiotis Agisilaou, 2013. "Collusion in Industrial Economics and Optimally Designed Leniency Programmes - A Survey," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2013-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    6. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    7. Spagnolo, Giancarlo, 2005. "Managerial incentives and collusive behavior," European Economic Review, Elsevier, vol. 49(6), pages 1501-1523, August.
    8. Margaret Levenstein, 1993. "Vertical Restraints in the Bromine Cartel: The Role of Distributors in Facilitating Collusion," NBER Historical Working Papers 0049, National Bureau of Economic Research, Inc.
    9. Gallice, Andrea, 2010. "The neglected effects of demand characteristics on the sustainability of collusion," Research in Economics, Elsevier, vol. 64(4), pages 240-246, December.
    10. Swoboda, Sandra Maria, 2018. "Market structure and cartel duration: Evidence from detected EU cartel cases," Arbeitspapiere 184, University of Münster, Institute for Cooperatives.
    11. Vincenzo Scoppa, 2003. "Contratti incompleti ed enforcement endogeno. Una rassegna della letteratura," Economia politica, Società editrice il Mulino, issue 3, pages 391-440.
    12. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    13. Hans W. Friederiszick & Frank P. Maier-Rigaud, 2008. "Triggering Inspections Ex Officio: Moving Beyond A Passive Eu Cartel Policy," Journal of Competition Law and Economics, Oxford University Press, vol. 4(1), pages 89-113.
    14. Andreas Freitag & Catherine Roux & Christian Thöni, 2021. "Communication And Market Sharing: An Experiment On The Exchange Of Soft And Hard Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 175-198, February.
    15. Etienne Billette de Villemeur & Laurent Flochel & Bruno Versaevel, 2009. "Optimal Collusion with Limited Severity Constraint," Post-Print halshs-00375798, HAL.
    16. Federico Boffa & Carlo Scarpa, 2009. "An Anticompetitive Effect of Eliminating Transport Barriers in Network Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(2), pages 115-133, March.
    17. Martin, Simon & Rasch, Alexander, 2024. "Demand forecasting, signal precision, and collusion with hidden actions," International Journal of Industrial Organization, Elsevier, vol. 92(C).
    18. Thorsten Lübbers, 2009. "Is Cartelisation Profitable? A Case Study of the Rhenish Westphalian Coal Syndicate, 1893-1913," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2009_09, Max Planck Institute for Research on Collective Goods.
    19. Ari Hyytinen & Frode Steen & Otto Toivanen, 2018. "Cartels Uncovered," American Economic Journal: Microeconomics, American Economic Association, vol. 10(4), pages 190-222, November.
    20. Matsushima, Hitoshi, 2001. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," Journal of Economic Theory, Elsevier, vol. 98(1), pages 158-178, May.

    More about this item

    Keywords

    collusion; labor market; endogenous wage;
    All these keywords.

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-18-00162. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.