Cartel Stability and Product Di¤erentiation: How Much Do the Size of the Cartel and the Size of the Industry Matter?

This article analyses how the degree of product di¤erentiation, the size of the cartel and the size of the industry a¤ect the stability of a cartel formed by any number of …rms in an industry of any size. The paper considers a supergame-theoretic model to de…ne stability. After a nonloyal member leaves the cartel, two possible reactions by the remaining members of the cartel are assumed. The …rst one is a trigger strategy where the cartel dissolves after one member has left and the second is one where the cartel keeps acting as a cartel with one member less. The work also extends the analysis to investigate the stability of the remaining cartel. The results indicate that the relation between the cartel stability and the degree of di¤erentiation of the products depends considerably on the size of the cartel, the size of the industry and the reaction of the loyal members of the cartel.

Issue Date:
Apr 17 2000
Publication Type:
Working or Discussion Paper
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 Record created 2018-03-07, last modified 2020-10-28

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