Journal of Industry, Competition and Trade

, Volume 14, Issue 4, pp 429–472 | Cite as

Asymmetric Collusion with Growing Demand

  • António Brandão
  • Joana Pinho
  • Hélder Vasconcelos
Article

Abstract

We characterize collusion sustainability in markets where demand growth triggers the entry of a new firm whose efficiency may be different from the efficiency of the incumbents. We find that the profit-sharing rule that firms adopt to divide the cartel profit after entry is a key determinant of the incentives for collusion (before and after entry). In particular, if the incumbents and the entrant are very asymmetric, collusion without side-payments cannot be sustained. However, if firms divide joint profits through bargaining and are sufficiently patient, collusion is sustainable even if firms are very asymmetric.

Keywords

Collusion Growing demand Nash bargaining Profit-sharing 

JEL Classifications

K21 L11 L13 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • António Brandão
    • 1
  • Joana Pinho
    • 1
  • Hélder Vasconcelos
    • 1
    • 2
  1. 1.CEF.UP and Faculdade de EconomiaUniversidade do PortoPortoPortugal
  2. 2.CEPRLondonUK

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