Cartel stability under capacity constraints: The traditional view restored

Nocke, Volker

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Document Type: Working paper
Year of publication: 1999
The title of a journal, publication series: STICERD Discussion Paper
Volume: EI/23
Place of publication: London
Publication language: English
Institution: School of Law and Economics > VWL, Mikroökonomik (Nocke 2009-)
Subject: 330 Economics
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.

Dieser Datensatz wurde nicht während einer Tätigkeit an der Universität Mannheim veröffentlicht, dies ist eine Externe Publikation.

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