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

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  • 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
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    References listed on IDEAS

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    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.

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    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

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