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Competition, Tacit Collusion and Free Entry

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Abstract

Few oligopoly models address the problem of tacit collusion when there is the possibility of entry. One model that does so is the well-known Loschian model of spatial competition. The purpose of this paper is to present a reexamination of this model within the context of game theory. The authors model the process leading to industry equilibrium with collusive behavior as a two-stage process. The first stage determines a free-entry equilibrium using Bertrand-Nash assumptions, while the second stage deals with the collusive selection of price. This solution is shown to be a subgame perfect Nash equilibrium. At equilibrium, firms make long-run excess profits even in the presence of free entry. Copyright 1987 by Royal Economic Society.

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  • MacLeod, W B & Norman, G & Thisse, J-F, 1987. "Competition, Tacit Collusion and Free Entry," Economic Journal, Royal Economic Society, vol. 97(385), pages 189-198, March.
    • Handle: RePEc:ecj:econjl:v:97:y:1987:i:385:p:189-98
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    Cited by:

    1. Christian Johansson & Anders Kärnä & Jaakko Meriläinen, 2023. "Vox Populi, Vox Dei? Tacit collusion in politics," Economics and Politics, Wiley Blackwell, vol. 35(3), pages 752-772, November.
    2. George Norman & Jacques-François Thisse, 1998. "Should Pricing Policies be Regulated when Firms may Tacitly Collude?," Discussion Papers Series, Department of Economics, Tufts University 9803, Department of Economics, Tufts University.
    3. George Norman & Jacques‐François Thisse, 1999. "Technology Choice and Market Structure: strategic aspects of flexible manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 345-372, September.
    4. Andrea Amelio & Sara Biancini, 2010. "Alternating Monopoly And Tacit Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 402-423, June.
    5. Damania, D., 1996. "The scope for collusion in a regulated vertically integrated telecommunications industry," Information Economics and Policy, Elsevier, vol. 8(2), pages 141-160, June.
    6. Toshiharu Ishikawa & Masao Toda, 1995. "An Unequal Spatial Structure of Location and Price with Consumer Density," The Economic Record, The Economic Society of Australia, vol. 71(2), pages 167-178, June.
    7. Aldo Montesano, 2012. "Price collusion with free entry: the parasitic competition," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(1), pages 41-65, March.

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