Journal of Economics

, Volume 118, Issue 1, pp 1–34 | Cite as

Sustaining collusion in markets with entry driven by balanced growth

  • João Correia-da-Silva
  • Joana Pinho
  • Hélder Vasconcelos
Article

Abstract

This paper studies the sustainability of collusion in markets where growth is not restricted to occur at a constant rate and may trigger future entry. Entry typically occurs later along the punishment path than along the collusive path (since profits are lower in the former case), and may not even occur along the punishment path. The possibility of delaying or even deterring entry may, therefore, constitute an additional incentive for deviating just before entry is supposed to occur along the collusive path. If firms set quantities and revert to Cournot equilibrium after a deviation, this incentive more than compensates for the fact that there are more firms after entry, making collusion harder to sustain before entry than after entry. If, instead, firms set prices or use optimal penal codes, deterring entry by breaking the cartel is not profitable, and thus collusion is harder to sustain after entry than before entry. The proposed model encompasses and explains conflicting results derived in the extant literature under more restrictive settings, and derives some novel results.

Keywords

Collusion Entry Market growth 

JEL Classification

L11 L13 K21 

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Copyright information

© Springer-Verlag Wien 2015

Authors and Affiliations

  1. 1.Toulouse School of Economics 21Allée de BrienneToulouseFrance
  2. 2.CEF.UP and Faculdade de Economia, Universidade do PortoRua Dr. Roberto FriasPortoPortugal

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