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Cartels and Search

Author

Listed:
  • Ireland, Norman

    (University of Warwick)

  • Waterson, Michael

    (University of Warwick)

Abstract

This paper unifies two significant but somewhat contradictory ideas. First, search costs potentially influence market price equilibria significantly; in many equilibria consumers do not search despite above-competitive prices. Second, cartels must guard against individual members offering lower prices, thereby creating incentives for consumers to search. We develop a simple framework, and then an example, in which whether search takes place depends upon the magnitude of search costs. Three potential equilibria result, dependent upon model parameters. These include a tacit cartel agreement exhibiting price variance and volatility. A policy conclusion is that such market characteristics do not always guarantee non-cartelisation.

Suggested Citation

  • Ireland, Norman & Waterson, Michael, 2006. "Cartels and Search," The Warwick Economics Research Paper Series (TWERPS) 770, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:770
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2006/twerp_770.pdf
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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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