Inter-group competition through joint marketing efforts and intra-group Cournot competition
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In service industries such as the tourism industry, each firm in a given market faces intra-market competition in relation to quantity setting as well as inter-market competition regarding promotional activity. This study investigates whether collusion in relation to quantity setting and/or promotional activity in these markets is simultaneously beneficial for each firm. In particular, it examines the following four cases: double collusion, single collusion in relation to promotion, single collusion in relation to quantity setting, and competition. We demonstrate that double collusion does not always generate the largest profit for each firm, and that competition may generate the largest profit, which is contrary to conventional wisdom. Moreover, competition is always socially desirable. The novel contribution of this study is the analysis of what happens in terms of each firm’s collusive promotional activities, demonstrating that collusive promotional activities bring about overpromotion that reduces a firm’s profit. Furthermore, single collusion in relation to quantity setting competition results in overpromotion and a reduction in the firm’s profit. Thus, our main contribution is to illustrate the inefficiency of these collusion mechanisms.
KeywordsInter-market competition Intra-market competition Promotional activity Collusion
JEL ClassificationD21 D43 D74 L13
The authors would like to thank the editor and three anonymous referees for their constructive and helpful comments. An earlier version of this paper was presented at the 2013 spring meeting of the Japanese Association of Applied Economics (Ritsumeikan University) and the 2013 spring meeting of the Japanese Economic Association (Toyama University). We sincerely thank Toshihiro Matsumura (University of Tokyo), Hiroshi Kitamura (Kyoto-Sangyou University), and Noriaki Matsushima (Osaka University). We thank Geoff Whyte, MBA, from Edanz Group (www.edanzediting.com/ac) for editing a draft of this manuscript. The authors gratefully acknowledge financial support in the form of Grants-in-Aid from the Ministry of Education, Culture, Sports, and Technology (Nos. 25245042, 26380340, 17K03734, and 18K01613).
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