A dynamic analysis of collusive networks
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This paper investigates the strategic formation of collusive networks in a dynamic framework. A collusive network is a set of market sharing agreements between firms in oligopolistic markets and auctions. Belleflamme and Bloch (Int Econ Rev 45(2):387–411, 2004) fully characterize the pairwise stable collusive networks in their symmetric model. In contrast, we characterize the collusive networks to which a dynamic network formation process converges with positive probability in the symmetric model. We provide a complete characterization for the case of the process that starts from a network with sufficiently few links. Moreover, we show that the process never cycles but always converges to a stable network. In addition, we discuss an asymmetric model where firms enjoy a home country advantage. We show that the expected number of collusive agreements may be reduced by an increase in the degree of the home country advantage. This implies that policies for discouraging entry may fail, and may lead to a decrease in expected social surplus.
KeywordsNetworks Market sharing agreement Formation process Pairwise stability Closed improving cycle
JEL ClassificationD85 L10
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