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Joint Venture for Product Innovation and Cartel Stability under Vertical Differentiation

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  • L. Lambertini
  • C. Iori

Abstract

We describe a vertically differentiated market where firms choose between activating either independent ventures leading to distinct product qualities, or a joint venture for a single quality. Then, firms either repeat the one-shot Nash equilibrium forever, or behave collusively, according to discount factors. We prove that there exists a parameter region where the joint venture makes it more difficult for firms to sustain collusive behaviour, as compared to independent ventures. Therefore, public policies towards R&D behaviour should be designed so as not to become inconsistent with the pro-competitive attitude characterising the current legislation on marketing practices.

Suggested Citation

  • L. Lambertini & C. Iori, 2000. "Joint Venture for Product Innovation and Cartel Stability under Vertical Differentiation," Working Papers 385, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:385
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