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Collusion in Multiproduct Oligopoly Games under a Finite Horizon

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  • Harrington, Joseph E, Jr

Abstract

Applying recent results on finitely repeated games to oligopoly theory, the author finds that there exists a class of finite horizon output games in which collusion can be achieved as a subgame perfect equilibrium. Trigger strategies prevent defection from the cooperative outcome by credibly threatening that the defector will be forced to exit the industry. For the case of a multiproduct oligopoly, it is shown that collusion in one market can be enforced by the threat of punishment in a second market if someone defects. Even though the two markets are structurally independent, the firms make them strategically interdependent through their strategies. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Harrington, Joseph E, Jr, 1987. "Collusion in Multiproduct Oligopoly Games under a Finite Horizon," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 1-14, February.
    • Handle: RePEc:ier:iecrev:v:28:y:1987:i:1:p:1-14
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    Cited by:

    1. X. Wang & Jingang Zhao, 2010. "Why are firms sometimes unwilling to reduce costs?," Journal of Economics, Springer, vol. 101(2), pages 103-124, October.
    2. Spagnolo, Giancarlo, 1996. "Multimarket Contact, Concavity, and Collusion: on Extremal Equilibria of Interdependent Supergames," SSE/EFI Working Paper Series in Economics and Finance 104, Stockholm School of Economics, revised 30 Nov 1998.
    3. Francesco Lagona & Antonello Maruotti & Fabio Padovano, 2012. "The opposite Cycles of Laws and Decrees," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2012-01-ccr, Condorcet Center for political Economy.
    4. David G. Pearce & Dilip Abreu & Ennio Stacchetti, 1989. "Renegotiation and Symmetry in Repeated Games," Cowles Foundation Discussion Papers 920, Cowles Foundation for Research in Economics, Yale University.
    5. Hans‐Theo Normann & Tobias Wenzel, 2019. "Shrouding Add‐On Information: An Experimental Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1705-1727, October.
    6. Horstmann, Niklas & Krämer, Jan, 2013. "Price discrimination or uniform pricing: Which colludes more?," Economics Letters, Elsevier, vol. 120(3), pages 379-383.
    7. Garcia-Gallego, Aurora & Georgantzis, Nikolaos, 2001. "Multiproduct activity in an experimental differentiated oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 493-518, March.
    8. Zhang, Anming & Zhang, Yimin, 1996. "Stability of a Cournot-Nash equilibrium: The multiproduct case," Journal of Mathematical Economics, Elsevier, vol. 26(4), pages 441-462.
    9. Jeroen Hinloopen, 2003. "Cartel Stability with Subjective Detection Beliefs," Tinbergen Institute Discussion Papers 03-008/2, Tinbergen Institute.
    10. Wenzel, Tobias & Normann, Hans-Theo, 2015. "Shrouding add-on information: an experimental study," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113149, Verein für Socialpolitik / German Economic Association.
    11. Catherine ROUX & Thomas VON UNGERN-STERNBERG, 2007. "Leniency Programs in a Multimarket Setting: Amnesty Plus and Penalty Plus," Cahiers de Recherches Economiques du Département d'économie 07.03, Université de Lausanne, Faculté des HEC, Département d’économie.
    12. Joseph E. Harrington, Jr., 2012. "Evaluating Mergers for Coordinated Effects and the Role of 'Parallel Accommodating Conduct'," Economics Working Paper Archive 601, The Johns Hopkins University,Department of Economics.
    13. Davide Vannoni, 2000. "The diversifield firm: non formal theories versus formal models," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2000(106).
    14. Ronald Harstad & Stephen Martin & Hans-Theo Normann, 1997. "Experimental Tests of Consciously Parallel Behaviour in Oligopoly," CIE Discussion Papers 1997-07, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    15. Francesco Lagona & Fabio Padovano, 2008. "The political legislation cycle," Public Choice, Springer, vol. 134(3), pages 201-229, March.

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