Cartel stability under capacity constraints: The traditional view restored

Nocke, Volker

URL:	http://sticerd.lse.ac.uk/dps/ei/ei23.pdf
Weitere URL:	https://papers.ssrn.com/sol3/papers.cfm?abstract_i...
Dokumenttyp:	Arbeitspapier
Erscheinungsjahr:	1999
Titel einer Zeitschrift oder einer Reihe:	STICERD Discussion Paper
Band/Volume:	EI/23
Ort der Veröffentlichung:	London
Sprache der Veröffentlichung:	Englisch
Einrichtung:	Fakultät für Rechtswissenschaft und Volkswirtschaftslehre > VWL, Mikroökonomik (Nocke 2009-)
Fachgebiet:	330 Wirtschaft
Abstract:	The existence of a negative relationship between cartel stability and the level of excess capacity in an industry has for a long time been the dominant view in the traditional IO literature. Recent supergame-theoretic contributions (e.g. Brock and Scheinkman, 1985) appear to show that this view is ill-founded. Focussing on the issue of enforcement of cartel rules ('incentive contraints'), however, this literature completely ignores firms' 'participation constraints'. Reverting the focus of attention, the present paper restores the traditional view: large cartels will not be sustainable in periods of high excess capacity (low demand). In contrast to the supergame-theoretic literature, it predicts a negative relationship between excess capacity and the collusive price.