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Collusion and Customization

Author

Listed:
  • Francisco Martínez-Sánchez

    (Departamento de Métodos Cuantitativos para la Economía y la, Empresa, Universidad de Murcia, 30100 Murcia, Spain)

Abstract

We analyze the effect of customizing a product on the ability of firms to tacitly collude on prices. Following [Bar-Isaac et al. [2014] Targeted product design: Locating inside the Salop circle, Mimeo], we allow firms to be located inside the circle in the Salop model [Salop, S. [1979] Monopolistic competition with outside goods, Bell J. Econ., 10(1), 141–156]. Our analysis shows that the effect of product customization on the stability of collusion depends on the sensitivity of consumers’ utility to the degree of customization. In particular, if that sensitivity is low enough, then greater customization facilitates collusion. Otherwise, greater customization hinders collusion if consumers value the product little.

Suggested Citation

  • Francisco Martínez-Sánchez, 2020. "Collusion and Customization," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-11, December.
    • Handle: RePEc:wsi:igtrxx:v:22:y:2020:i:04:n:s0219198920500073
    DOI: 10.1142/S0219198920500073
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