Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264195 
Year of Publication: 
2021
Series/Report no.: 
Bruegel Working Paper No. 09/2021
Publisher: 
Bruegel, Brussels
Abstract: 
How do incentives to collude depend on how asymmetric firms are? In many markets product quality is an important parameter that determines firms' market strategies. We study collusion in a quality-differentiated duopoly and we adopt a Nash bargaining approach to compute the collusive equilibrium and assess its stability. We derive collusive and deviation strategies as continuous functions of quality asymmetry. We obtain novel and surprising results. Stability of collusion is associated with quality differentiation in a non-monotonic way. For low levels of differentiation, an increase in quality difference makes collusion less stable. The opposite holds for high levels of differentiation. Also, while low quality firms are more likely to leave the cartel for small quality differences, high quality firms determine cartel stability when the quality difference is suffciently high. Our results have implications for empirical research, and antitrust enforcement.
Subjects: 
Collusion
Vertical dierentiation
Nash bargaining
JEL: 
D43
L13
L40
K21
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.