Journal article
Semicollusion vs. Full Collusion: The Role of Demand Uncertainty and Product Substitutability
Journal of economics (Vienna, Austria), v 77(2)
Nov 2002
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
We examine the profitability of two different cartel organizational forms: full collusion, under which firms collude on both price and quality, and semicollusion, under which firms collude on price only. We show that, in the presence of demand uncertainty that cannot be contracted upon in the cartel agreement, firms may be better off limiting their collusive agreement to price only. However, a positive relationship between demand uncertainty and the relative profitability of semicollusion exists only for low levels of demand substitutability. The converse is true for high levels of demand substitutability. Therefore, if demand substitutability is sufficiently high, no level of demand uncertainty will make semicollusion the optimal organizational form. In contrast, semicollusion is guaranteed to be optimal for a sufficiently low level of demand substitutability. The market structure described is motivated by and closely parallels that of shipping cartels.
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Details
- Title
- Semicollusion vs. Full Collusion: The Role of Demand Uncertainty and Product Substitutability
- Creators
- George Deltas - Department of Economics, University of Illinois, Champaign IL 61820, USA (e-mail: deltas@uiuc.edu) USKonstantinos Serfes - Department of Economics, SUNY at Stony Brook, Stony Brook, NY 11794-4384 (e-mail: kserfes@notes.cc.sunysb.edu) US
- Publication Details
- Journal of economics (Vienna, Austria), v 77(2)
- Publisher
- Springer-Verlag; Wien
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000179723100001
- Scopus ID
- 2-s2.0-0036862741
- Other Identifier
- 991014878519404721
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- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Economics