IDEAS home Printed from https://ideas.repec.org/a/spr/jecrev/v71y2020i4d10.1007_s42973-019-00027-6.html
   My bibliography  Save this article

Bargaining over collusion: the threat of supply function versus Cournot competition under demand uncertainty and cost asymmetry

Author

Listed:
  • Ismail Saglam

    (TOBB University of Economics and Technology)

Abstract

In this paper, we study bargaining over collusion profits in a duopolistic industry with cost asymmetry and demand uncertainty. We consider disagreement payoffs obtained from the non-cooperative equilibrium of either the quantity competition or the supply function competition, and bargaining solutions splitting the gains from agreement either equally or proportionally. We find that each duopolist has always incentive to join a collusive agreement, and the more efficient firm (the less efficient firm) in the cartel always obtains a higher agreement payoff when the disagreement payoff is obtained from the equilibrium of supply function competition (quantity competition).

Suggested Citation

  • Ismail Saglam, 2020. "Bargaining over collusion: the threat of supply function versus Cournot competition under demand uncertainty and cost asymmetry," The Japanese Economic Review, Springer, vol. 71(4), pages 671-693, October.
    • Handle: RePEc:spr:jecrev:v:71:y:2020:i:4:d:10.1007_s42973-019-00027-6
    DOI: 10.1007/s42973-019-00027-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s42973-019-00027-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s42973-019-00027-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Xavier Vives, 2011. "Strategic Supply Function Competition With Private Information," Econometrica, Econometric Society, vol. 79(6), pages 1919-1966, November.
    2. Joseph E. Harrington & Andrzej Skrzypacz, 2011. "Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices," American Economic Review, American Economic Association, vol. 101(6), pages 2425-2449, October.
    3. Kalai, Ehud, 1977. "Proportional Solutions to Bargaining Situations: Interpersonal Utility Comparisons," Econometrica, Econometric Society, vol. 45(7), pages 1623-1630, October.
    4. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    5. Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, vol. 49(5), pages 1149-1172, September.
    6. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, June.
    7. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
    8. Aitor Ciarreta & Carlos Gutiérrez-Hita, 2012. "Collusive behaviour under cost asymmetries when firms compete in supply functions," Journal of Economics, Springer, vol. 106(3), pages 195-219, July.
    9. Ismail Saglam, 2018. "The desirability of the supply function competition under demand uncertainty," Economics Bulletin, AccessEcon, vol. 38(1), pages 541-549.
    10. Harrington, Joseph E., 2006. "How Do Cartels Operate?," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(1), pages 1-105, August.
    11. Don Patinkin, 1947. "Multiple-Plant Firms, Cartels, and Imperfect Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 61(2), pages 173-205.
    12. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    13. Nejat Anbarci, 1995. "Reference Functions and Balanced Concessions in Bargaining," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 675-682, August.
    14. Osborne, Martin J. & Pitchik, Carolyn, 1983. "Profit-sharing in a collusive industry," European Economic Review, Elsevier, vol. 22(1), pages 59-74, June.
    15. Joe S. Bain, 1948. "Output Quotas in Imperfect Cartels," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 62(4), pages 617-622.
    16. Fischer, Christian & Normann, Hans-Theo, 2019. "Collusion and bargaining in asymmetric Cournot duopoly—An experiment," European Economic Review, Elsevier, vol. 111(C), pages 360-379.
    17. Rudkevich, Aleksandr & Duckworth, Max, 1998. "Strategic bidding in a deregulated generation market: implications for electricity prices, asset valuation and regulatory response," The Electricity Journal, Elsevier, vol. 11(1), pages 73-83.
    18. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    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. Ihsan Celen & Ismail Saglam, 2022. "Collusion in supply functions under technology licensing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1362-1378, July.
    2. Saglam, Ismail, 2022. "Monopoly Persistence under the Threat of Supply Function Competition," MPRA Paper 111829, University Library of Munich, Germany.

    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. Saglam, Ismail, 2018. "Bargaining over Collusion Profits under Cost Asymmetry and Demand Uncertainty," MPRA Paper 84007, University Library of Munich, Germany.
    2. Aitor Ciarreta & Carlos Gutiérrez-Hita, 2012. "Collusive behaviour under cost asymmetries when firms compete in supply functions," Journal of Economics, Springer, vol. 106(3), pages 195-219, July.
    3. Ihsan Celen & Ismail Saglam, 2022. "Collusion in supply functions under technology licensing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1362-1378, July.
    4. Saglam, Ismail, 2022. "Monopoly Persistence under the Threat of Supply Function Competition," MPRA Paper 111829, University Library of Munich, Germany.
    5. Ismail Saglam, 2023. "Licensing cost‐reducing innovations under supply function competition," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 180-201, January.
    6. Pierluigi Sabbatini, 2016. "The Coordinated Effect of a Merger with Balanced Sharing of Collusive Profits," Journal of Industry, Competition and Trade, Springer, vol. 16(3), pages 345-371, September.
    7. Ismail Saglam, 2018. "Ranking Supply Function and Cournot Equilibria in a Differentiated Product Duopoly with Demand Uncertainty," Games, MDPI, vol. 9(3), pages 1-13, August.
    8. , H. & ,, 2016. "Approximate efficiency in repeated games with side-payments and correlated signals," Theoretical Economics, Econometric Society, vol. 11(1), January.
    9. Luke Garrod & Matthew Olczak, 2017. "Collusion Under Imperfect Monitoring with Asymmetric Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 654-682, September.
    10. Flavio M. Menezes & John Quiggin, 2023. "Competition in supply functions and conjectural variations: a unified solution," Australian Institute for Business and Economics DP012023, School of Economics, University of Queensland, Australia.
    11. Nikolaus Fink & Philipp Schmidt-Dengler & Konrad Stahl & Christine Zulehner, 2017. "Registered cartels in Austria: an overview," European Journal of Law and Economics, Springer, vol. 44(3), pages 385-422, December.
    12. Delbono, Flavio & Lambertini, Luca, 2016. "Ranking Bertrand, Cournot and supply function equilibria in oligopoly," Energy Economics, Elsevier, vol. 60(C), pages 73-78.
    13. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Prices and Concentration: A U-Shape? Theory and Evidence from Renewables," SciencePo Working papers Main hal-04631762, HAL.
    14. Ramesh Johari & John N. Tsitsiklis, 2011. "Parameterized Supply Function Bidding: Equilibrium and Efficiency," Operations Research, INFORMS, vol. 59(5), pages 1079-1089, October.
    15. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Prices and Concentration: A U-Shape? Theory and Evidence from Renewables," Working Papers hal-04631762, HAL.
    16. Joseph E. Harrington Jr. & Juan-Pablo Montero, 2014. "Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance," World Scientific Book Chapters, in: Martin Peitz & Yossi Spiegel (ed.), THE ANALYSIS OF COMPETITION POLICY AND SECTORAL REGULATION, chapter 7, pages 175-192, World Scientific Publishing Co. Pte. Ltd..
    17. Do, Jihwan, 2022. "Cheating and compensation in price-fixing cartels," Journal of Economic Theory, Elsevier, vol. 200(C).
    18. Saglam, Ismail, 2022. "Pretend-But-Perform Regulation of a Duopoly under Three Competition Modes," MPRA Paper 116767, University Library of Munich, Germany.
    19. Marc Escrihuela‐Villar & Carlos Gutiérrez‐Hita & José Vicente‐Pérez, 2020. "Supply function competition in a mixed electric power market," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 1151-1175, August.
    20. van den Berg, Anita & Bos, Iwan, 2017. "Collusion in a price-quantity oligopoly," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 159-185.

    More about this item

    Keywords

    Duopoly; Collusion; Bargaining; Cournot competition; Supply function competition; Uncertainty;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    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:spr:jecrev:v:71:y:2020:i:4:d:10.1007_s42973-019-00027-6. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.