DP6975 The Neglected Effects of Demand Characteristics on the Sustainability of Collusion

Author(s): Andrea Gallice
Publication Date: September 2008
Keyword(s): Bertrand supergames, collusion, market demand
JEL(s): L13, L41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6975

According to standard IO models, the characteristics of market demand (intercept, slope, elasticity) and of the technology (level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. The paper modifies this counterintuitive result by showing that all the above mentioned factors do affect the sustainability of collusion when prices are assumed to be discrete rather than continuous. The sign of these effects is unambiguous. Their magnitude varies greatly: in some cases it is totally negligible, in others it becomes extremely relevant.