Price setting supergames with capacity constraints
WA Brock, JA Scheinkman - The Review of Economic Studies, 1985 - academic.oup.com
The Review of Economic Studies, 1985•academic.oup.com
This paper examines the role of industry capacity in enforcing collusion in the context of
repeated games. For a fixed capacity per firm it is shown that changes in the number of firms
have a non-monotone effect on the best enforceable cartel price. This is due to the fact that
while an additional firm lowers the share that each of the other firms enjoys at the collusive
price it also increases the losses to each firm should the cartel fail.
repeated games. For a fixed capacity per firm it is shown that changes in the number of firms
have a non-monotone effect on the best enforceable cartel price. This is due to the fact that
while an additional firm lowers the share that each of the other firms enjoys at the collusive
price it also increases the losses to each firm should the cartel fail.
Abstract
This paper examines the role of industry capacity in enforcing collusion in the context of repeated games. For a fixed capacity per firm it is shown that changes in the number of firms have a non-monotone effect on the best enforceable cartel price. This is due to the fact that while an additional firm lowers the share that each of the other firms enjoys at the collusive price it also increases the losses to each firm should the cartel fail.
Oxford University Press