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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Volume 15, Issue 1 (Jan 2015)

Issues

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

How Should Cartels React to Entry Triggered by Demand Growth?

João Correia-da-Silva
  • CEF.UP and Faculdade de Economia, Universidade do Porto, Porto, Portugal
  • Email:
/ Joana Pinho
  • Corresponding author
  • CEF.UP and Faculdade de Economia, Universidade do Porto, Porto, Portugal
  • Email:
/ Hélder Vasconcelos
  • CEPR. CEF.UP and Faculdade de Economia, Universidade do Porto, Porto, Portugal
  • Email:
Published Online: 2014-11-19 | DOI: https://doi.org/10.1515/bejeap-2013-0164

Abstract

We study the sustainability of collusion with optimal penal codes in markets where demand growth triggers the entry of a new firm. In contrast to grim trigger strategies, optimal penal codes make collusion easier to sustain before entry than after. This conclusion is robust to changes in the number of entrants and to the consideration of price-setting instead of quantity-setting. A comparison is given between different reactions of the incumbents to entry in terms of sustainability of collusion, incumbents’ profits, entrant’s profits, consumer surplus and social welfare. One of our findings is that the incumbent firms may prefer competition to collusion.

Keywords: collusion; demand growth; optimal penal codes; reactions to entry

JEL Classification Numbers: K21; L11; L13

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About the article

Published Online: 2014-11-19

Published in Print: 2015-01-01


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2013-0164.

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