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Collusion Price Sustainability under Demand Uncertainty and Smooth Transition Market Share
| Content Provider | Semantic Scholar |
|---|---|
| Author | Trapani, Lorenzo |
| Copyright Year | 2002 |
| Abstract | We analyze the sustainability over time of collusion equilibrium in a two ̄rms market with uncertain demand and risk neutrality, modeling uncertainty under several di®erent distributional assumptions. Expected demand is assumed to be subject to inertia in that a di®erence between the two ̄rms' prices results in a smooth variation of the market share instead of a discrete 0-1 outcome; demand is modeled as continuous in the price di®erence and secret price cuts result in the increase of the own market share and pro ̄t. We show that when secret price cuts cannot be observed directly and cheating may be inferred only on the ground of the own pro ̄t's level, the higher demand uncertainty, the more deviating from collusion equilibrium pays. Under the assumption of trigger strategies and ̄rms employing a tail test based upon a threshold pro ̄t level to detect price cuttings, we ̄nd that strict detection rules result to be less e®ective than milder ones in order to avoid deviation. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://content.csbs.utah.edu/~ehrbar/erc2002/pdf/P117.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
