On the relationship between product substitutability and tacit collusion

✍ Scribed by Rajeev K. Tyagi

• Publisher: John Wiley and Sons
• Year: 1999
• Tongue: English
• Weight: 88 KB
• Volume: 20
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/(sici)1099-1468(199909)20:6<293::aid-mde941>3.0.co;2-t

✦ Synopsis

This paper examines the effect of increased product substitutability on quantity-setting firms' ability to sustain tacit collusion in a market. It uses a general demand function and the trigger strategy of Friedman (Friedman JW. 1971. A non-cooperative equilibrium for supergames. Re7iew of Economic Studies 38: 1 -12) to show that while increased product substitutability hinders sustainability of tacit collusion in the case of linear and concave demand functions, it may either hinder or facilitate firms' ability to sustain tacit collusion in the case of convex demand functions. Thus, this paper adds to the growing view that one must use a case-by-case analysis in judging whether firms in more homogenous product markets find it easier or harder to tacitly collude.