IDEAS home Printed from https://ideas.repec.org/p/crs/wpaper/2006-22.html
   My bibliography  Save this paper

Delivered Pricing and the Effect of Horizontal Differentiation on Optimal Collusion

Author

Listed:
  • Jeanine Thal

    (Crest)

Abstract

This paper analyzes the impact of horizontal differentiation on the sustainability of collusionwhen firms charge delivered prices. Gupta and Venkatu (2002) show that differentiationhinders collusion if firms employ standard grim trigger punishments. The reason is thatcompetitive profits are higher the higher the degree of differentiation, which weakensdeterrence. We show that the results change dramatically if collusion is sustained by optimalpunishments instead, since these yield minmax profits irrespectively of the degree ofdifferentiation.A high degree of differentiation then tends to facilitate collusion by rendering deviations lessprofitable. Excessive differentiation sometimes hinders collusion, however, because it alsoimplies high transportation costs for a successful cartel.

Suggested Citation

  • Jeanine Thal, 2006. "Delivered Pricing and the Effect of Horizontal Differentiation on Optimal Collusion," Working Papers 2006-22, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2006-22
    as

    Download full text from publisher

    File URL: http://crest.science/RePEc/wpstorage/2006-22.pdf
    File Function: Crest working paper version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hackner, Jonas, 1996. "Optimal symmetric punishments in a Bertrand differentiated products duopoly," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 611-630, July.
    2. repec:bla:econom:v:48:y:1981:i:189:p:79-86 is not listed on IDEAS
    3. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
    4. Toshihiro Matsumura & Noriaki Matsushima, 2005. "Cartel Stability in a Delivered Pricing Oligopoly," Journal of Economics, Springer, vol. 86(3), pages 259-292, December.
    5. Carlton, Dennis W, 1983. "A Reexamination of Delivered Pricing Systems," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 51-70, April.
    6. John Greenhut & M. L. Greenhut & Sheng-yung Li, 1980. "Spatial Pricing Patterns in the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(2), pages 329-350.
    7. Thisse, Jacques-Francois & Vives, Xavier, 1992. "Basing Point Pricing: Competition versus Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 249-260, September.
    8. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    9. Michael A. Raith, 1996. "Product Differentiation, Uncertainty and the Stability of Collusion," STICERD - Economics of Industry Papers 16, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    10. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-396, March.
    11. Chang, Myong-Hun, 1992. "Intertemporal Product Choice and Its Effects on Collusive Firm Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 773-793, November.
    12. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    13. Maria Paz Espinosa, 1992. "Delivered Pricing, FOB Pricing, and Collusion in Spatial Markets," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 64-85, Spring.
    14. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    15. Hackner, Jonas, 1995. "Endogenous product design in an infinitely repeated game," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 277-299.
    16. Barnali Gupta & Guhan Venkatu, 2002. "Tacit Collusion in a Spatial Model with Delivered Pricing," Journal of Economics, Springer, vol. 76(1), pages 49-64, May.
    17. Raith, Michael A., 1996. "Product differentiation, uncertainty and the stability of collusion," LSE Research Online Documents on Economics 6770, London School of Economics and Political Science, LSE Library.
    Full references (including those not matched with items on IDEAS)

    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. Miklós-Thal, Jeanine, 2008. "Delivered pricing and the impact of spatial differentiation on cartel stability," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1365-1380, November.
    2. Stefano Colombo, 2009. "The unidirectional Hotelling model with spatial price discrimination," Economics Bulletin, AccessEcon, vol. 29(4), pages 3031-3040.
    3. Stefano Colombo, 2012. "Collusion in two models of spatial competition with quantity-setting firms," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 48(1), pages 45-69, February.
    4. Stefano Colombo, 2009. "Sustainability of collusion with imperfect price discrimination and inelastic demand functions," Economics Bulletin, AccessEcon, vol. 29(3), pages 1687-1694.
    5. John S. Heywood & Dongyang Li & Guangliang Ye, 2020. "Does price discrimination make collusion less likely? a delivered pricing model," Journal of Economics, Springer, vol. 131(1), pages 39-60, September.
    6. Stefano Colombo, 2011. "Pricing Policy and Partial Collusion," Journal of Industry, Competition and Trade, Springer, vol. 11(4), pages 325-349, December.
    7. Colombo, Stefano, 2013. "Cartels in the unidirectional Hotelling model," Economic Modelling, Elsevier, vol. 31(C), pages 690-696.
    8. Kai Andree & John S. Heywood & Mike Schwan & Zheng Wang, 2018. "A Spatial Model Of Cartel Stability: The Influence Of Production Cost Convexity," Bulletin of Economic Research, Wiley Blackwell, vol. 70(3), pages 298-311, July.
    9. John S. Heywood & Dongyang Li & Guangliang Ye, 2021. "Spatial pricing and collusion," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 425-440, May.
    10. Stefano Colombo, 2012. "Colluding on a Price Increase," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 365-371, December.
    11. John S. Heywood & Zheng Wang, 2020. "Profitable collusion on costs: a spatial model," Journal of Economics, Springer, vol. 131(3), pages 267-286, December.
    12. Lambertini, L. & Sasaki, D., 1999. "A Cost-Side Analysis on Collusive Sustainability," Department of Economics - Working Papers Series 710, The University of Melbourne.
    13. Hackner, Jonas, 1996. "Optimal symmetric punishments in a Bertrand differentiated products duopoly," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 611-630, July.
    14. Lambertini, Luca & Poddar, Sougata & Sasaki, Dan, 2002. "Research joint ventures, product differentiation, and price collusion," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 829-854, June.
    15. Stefano Colombo, 2016. "Mixed oligopolies and collusion," Journal of Economics, Springer, vol. 118(2), pages 167-184, June.
    16. Döpper, Hendrik & Rasch, Alexander, 2024. "Combinable products, price discrimination, and collusion," International Journal of Industrial Organization, Elsevier, vol. 94(C).
    17. Camacho-Cuena, Eva & Garcia-Gallego, Aurora & Georgantzis, Nikolaos & Sabater-Grande, Gerardo, 2005. "Buyer-seller interaction in experimental spatial markets," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 89-108, March.
    18. Luca Lambertini, 2000. "Technology and Cartel Stability under Vertical Differentiation," German Economic Review, Verein für Socialpolitik, vol. 1(4), pages 421-442, November.
    19. Rasch, Alexander & Wambach, Achim, 2009. "Internal decision-making rules and collusion," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 703-715, November.
    20. Haan, Marco A. & Toolsema, Linda A., 2005. "The Effects of Cartelization on Product Design," Research Report 05F02, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

    More about this item

    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:crs:wpaper:2006-22. 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: Secretariat General (email available below). General contact details of provider: https://edirc.repec.org/data/crestfr.html .

    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.