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Leadership cartels in industries with differentiated products

By Pedro Posada

Abstract

This article analyses cartels that act as a Stackelberg leader with respect to a competitive fringe in industries supplying differentiated products. The main objectives are to investigate how cartel stability changes with the degree of differentiation and the cartel size, to predict endogenous cartels and to carry out a welfare analysis. Both repeated and static games are considered as well as industries competing in quantities and prices. The results indicate that the degree of stability can be either an increasing, decreasing or non-monotonic function of the degree of product differentiation, depending on the cartel size, the industry size, the competition type and the reaction of cartel loyal members to defection. An endogenous cartel size is also predicted. Other significant results are: some cartels can be sustained under simple static game Nash equilibrium, some cartels may be socially desirable, not all cartels are beneficial for the fringe members and a free riding problem does not necessarily emerge

Topics: HB, QA
Publisher: University of Warwick, Department of Economics
Year: 2001
OAI identifier: oai:wrap.warwick.ac.uk:1588

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