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Competitive Prices as Profit-Maximizing Cartel Prices

Author

Listed:
  • Harold Houba

    (VU University Amsterdam)

  • Evgenia Motchenkova

    (VU University Amsterdam)

  • Quan Wen

    (Vanderbilt University)

Abstract

This discussion paper has resulted in a publication in Economics Letters , 2012, 114, 39-42. Even under antitrust enforcement, firms may still form a cartel in an infinitely-repeated oligopoly model when the discount factor is sufficiently close to one. We present a linear oligopoly model where the profit-maximizing cartel price converges to the competitive equilibrium price as the discount factor goes to one. We then identify a set of necessary conditions for this seemingly counter-intuitive result.

Suggested Citation

  • Harold Houba & Evgenia Motchenkova & Quan Wen, 2010. "Competitive Prices as Profit-Maximizing Cartel Prices," Tinbergen Institute Discussion Papers 10-047/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20100047
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Antitrust enforcement; Cartel; Oligopoly; Repeated game;
    All these keywords.

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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    This paper has been announced in the following NEP Reports:

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