Leadership Cartels in Industries with Differentiated Products

This article analyses cartels that act as a Stackelberg leader with respect to a competitive fringe in industries supplying di¤erentiated products. The main objectives are to investigate how cartel stability changes with the degree of di¤erentiation 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 di¤erentiation, 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 signi…cant 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.

Issue Date:
Jun 05 2001
Publication Type:
Working or Discussion Paper
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 Record created 2018-03-07, last modified 2020-10-28

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