A Dynamic Oligopoly with Collusion and Price Wars
Volume: Volume 31, No. 2
Issue: Summer 2000
Pages: pp. 207-236
Authors: Chaim Fershtman and Ariel Pakes
Title: A Dynamic Oligopoly with Collusion and Price Wars
Abstract: We provide a collusive framework with heterogeneity among firms, investment, entry, and exit. It is a symmetric-information model in which it is hard to sustain collusion when there is an active firm that is likely to exit in the near future. Numerical analysis is used to compare a collusive to a noncollusive environment. Only the collusive industry generates price wars. Also, the collusive industry offers both more and higher-quality products to consumers, albeit often at a higher price. The positive effect of collusion on variety and quality more than compensates for the negative effect of collusive prices, so that consumer surplus is larger with collusion.
JEL Classification
Market Structure, Firm Strategy, and Market Performance: Oligopoly and Other Imperfect Markets;
monopolistic competition;
contestable markets (L130)
Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection (D430)
Collusion
Entry
Exit
Firm
Firms
Oligopoly