Collusion and predation under Cournot competition

Abstract

This paper studies how predation strategies can affect the sustainability of collusion in a duopoly. Collusion may be sustained at equilibrium for intermediate discount factors. In such instances, predation implies that punishment strategies will yield low subgame perfect payoffs, thereby making collusion easier to sustain. For low discount factors, collusion is not sustainable because of the high incentives to deviate to Cournot–Nash strategies. Moreover, for high discount factors, it is always optimal to predate a colluding firm, thus contrasting with much of the earlier literature showing that collusion is only achievable by sufficiently patient firms.