Colluding on excluding

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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 languageEnglish
Pages (from-to)194-206
JournalEuropean Economic Review
Volume113
DOIs
Publication statusPublished - Apr 2019

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Keywords

  • Cartels
  • Collusion
  • predatory pricing
  • Bertrand competition
  • Anticompetitive practice

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