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Product differentiation, uncertainty and the stability of collusion

Raith, Michael A. (1996) Product differentiation, uncertainty and the stability of collusion. EI, 16. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Identification Number: 16

Abstract

The conventional view that product heterogeneity limits the scope for collusion among oligolpolists has been challenged in recent theoretical work. This paper provides an argument in support of the conventional view by emphasising the role of uncertainty. I introduce the idea that, with stochastic demand, an increase in the heterogeneity of products also leads to a decrease in the correlation of the firms? demand shocks. With imperfect monitoring, this makes collusion more difficult to sustain, as discriminating between random demand shocks and marginal deviations from the cartel strategy becomes more difficult. These effects are illustrated within a Hotelling-type duopoly model.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk
Additional Information: © 1996 Michael A. Raith
Subjects: H Social Sciences > HF Commerce
JEL classification: L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization; Horizontal Anticompetitive Practices
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
Sets: Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Date Deposited: 09 Jul 2008 09:11
Last Modified: 01 Oct 2010 08:58
URI: http://eprints.lse.ac.uk/id/eprint/6770

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