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Article
Delivered Pricing and the Impact of Spatial Differentiation on Cartel Stability
International Journal of Industrial Organization (2008)
  • Jeanine Miklos-Thal
Abstract

This paper analyzes the impact of spatial differentiation on the sustainability of collusion on delivered prices. It shows that the choice of the punishment mechanism that enforces collusion is crucial for determining whether differentiation facilitates cartel pricing or not. If punishments are optimal, then differentiation tends to facilitate collusion. Optimal punishments impose minmax profits on deviators independently of the degree of differentiation. A high degree of differentiation then renders deviations less profitable, since it makes business stealing more costly but does not affect the deviator's punishment profits. Depending on the transport cost technology, excessive differentiation may have a countervailing effect, however, because it also implies high transport costs for the cartel. If collusion is sustained by standard grim trigger punishments instead, then collusion may be easiest for minimal differentiation. The reason is that competitive and thus grim trigger punishment profits are higher the higher the degree of differentiation.

Keywords
  • delivered pricing,
  • collusion,
  • optimal penal codes,
  • spatial differentiation
Disciplines
Publication Date
November, 2008
Citation Information
Jeanine Miklos-Thal. "Delivered Pricing and the Impact of Spatial Differentiation on Cartel Stability" International Journal of Industrial Organization Vol. 26 Iss. 6 (2008)
Available at: http://works.bepress.com/jmiklosthal/2/