Abstract
We study the endogenous formation of cartels from a dynamic point of view. First, we review some stability analyses from existing literature, which usually predict a rather small cartel as the outcome. We then study a dynamic model, in which firms can freely leave the cartel if they wish, and firms can enter the cartel if both the cartel and the firm so desire. We show that the dynamic process converges to a strongly stable cartel if one exists. Otherwise, the process does not converge, but during the process the cartel-size will never go below any size predicted by a stability analysis.
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Acknowledgments
The authors thank J.C. Bárcena, E. Iñarra, F. Valenciano, an anonymous referee and the editor for their comments and helpful discussions. N. Olaizola gratefully acknowledges financial support from Spanish Ministerio de Ciencia y Tecnología and FEDER (SEJ2006-05596), UPV/EHU (Subvención a grupos) and Basque Government Departamento de Educació n Universidades e Investigación (IT-223-07) projects.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Kuipers, J., Olaizola, N. A dynamic approach to cartel formation. Int J Game Theory 37, 397–408 (2008). https://doi.org/10.1007/s00182-008-0125-6
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DOI: https://doi.org/10.1007/s00182-008-0125-6