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Cartel formation in Cournot competition with asymmetric costs: A partition function approach

Author

Listed:
  • Takaaki Abe

    (School of Political Science and Economics, Waseda University)

Abstract

In this paper, we use a partition function form game to analyze cartel formation among firms in Cournot competition. We assume that a firm obtains a certain cost advantage that allows it to produce goods at a lower unit cost. We show that if the level of the cost advantage is “moderate”, then the firm with the cost advantage leads the cartel formation among the firms. Moreover, if the cost advantage satisfies another condition, then the formed cartel can also be stable in the sense of the core of a partition function form game. We also show that if the technology for the low-cost production can be copied, then the cost advantage may prevent a cartel from splitting.

Suggested Citation

  • Takaaki Abe, 2019. "Cartel formation in Cournot competition with asymmetric costs: A partition function approach," Working Papers 1911, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:1911
    as

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    References listed on IDEAS

    as
    1. Sylvie Thoron, 1998. "Formation of a Coalition-Proof Stable Cartel," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 63-76, February.
    2. Takaaki Abe, 2018. "Consistency and the core in games with externalities," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(1), pages 133-154, March.
    3. Yang, Guangjing & Sun, Hao & Hou, Dongshuang & Xu, Genjiu, 2019. "Games in sequencing situations with externalities," European Journal of Operational Research, Elsevier, vol. 278(2), pages 699-708.
    4. Ray, Debraj & Vohra, Rajiv, 1999. "A Theory of Endogenous Coalition Structures," Games and Economic Behavior, Elsevier, vol. 26(2), pages 286-336, January.
    5. Takaaki Abe & Yukihiko Funaki, 2017. "The non-emptiness of the core of a partition function form game," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(3), pages 715-736, August.
    6. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
    7. Sprumont, Yves, 1990. "Population monotonic allocation schemes for cooperative games with transferable utility," Games and Economic Behavior, Elsevier, vol. 2(4), pages 378-394, December.
    8. Bloch, Francis & van den Nouweland, Anne, 2014. "Expectation formation rules and the core of partition function games," Games and Economic Behavior, Elsevier, vol. 88(C), pages 339-353.
    9. Takaaki Abe & Shuige Liu, 2019. "Monotonic core allocation paths for assignment games," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 53(4), pages 557-573, December.
    10. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    cartel formation; Cournot competition; partition function form game; stability;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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