Colluding on excluding

Cedric Argenton

doi:10.1016/j.euroecorev.2019.01.006

Colluding on excluding

Cedric Argenton

Research output: Contribution to journal › Article › Scientific › peer-review

1 Citation (Scopus)

Abstract

In an oligopoly characterized by barriers to (re-)entry, a finite horizon, complete information, convex costs, and the presence of three identical firms, I show that in subgame-perfect equilibrium two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately. In this predatory pricing equilibrium, the predators can enjoy higher profits than in the best collusive equilibrium with three firms. Thus, a coalition of two firms can benefit from colluding on excluding.

Original language	English
Pages (from-to)	194-206
Journal	European Economic Review
Volume	113
DOIs	https://doi.org/10.1016/j.euroecorev.2019.01.006
Publication status	Published - Apr 2019

Keywords

Cartels
Collusion
predatory pricing
Bertrand competition
Anticompetitive practice

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10.1016/j.euroecorev.2019.01.006

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title = "Colluding on excluding",

abstract = "In an oligopoly characterized by barriers to (re-)entry, a finite horizon, complete information, convex costs, and the presence of three identical firms, I show that in subgame-perfect equilibrium two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately. In this predatory pricing equilibrium, the predators can enjoy higher profits than in the best collusive equilibrium with three firms. Thus, a coalition of two firms can benefit from colluding on excluding.",

keywords = "Cartels, Collusion, predatory pricing, Bertrand competition, Anticompetitive practice",

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N2 - In an oligopoly characterized by barriers to (re-)entry, a finite horizon, complete information, convex costs, and the presence of three identical firms, I show that in subgame-perfect equilibrium two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately. In this predatory pricing equilibrium, the predators can enjoy higher profits than in the best collusive equilibrium with three firms. Thus, a coalition of two firms can benefit from colluding on excluding.

AB - In an oligopoly characterized by barriers to (re-)entry, a finite horizon, complete information, convex costs, and the presence of three identical firms, I show that in subgame-perfect equilibrium two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately. In this predatory pricing equilibrium, the predators can enjoy higher profits than in the best collusive equilibrium with three firms. Thus, a coalition of two firms can benefit from colluding on excluding.

KW - Cartels

KW - Collusion

KW - predatory pricing

KW - Bertrand competition

KW - Anticompetitive practice

U2 - 10.1016/j.euroecorev.2019.01.006

DO - 10.1016/j.euroecorev.2019.01.006

M3 - Article

SN - 0014-2921

VL - 113

SP - 194

EP - 206

JO - European Economic Review

JF - European Economic Review

ER -

Colluding on excluding

Abstract

Keywords

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