Competition, Tacit Collusion and Free Entry

Macleod, W. Bentley; Norman, George

doi:10.2307/2233330

Cited by 24 publications

(4 citation statements)

References 6 publications

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“…Interestingly, the opinions of voters and politicians become similar (on average) around the European refugee crisis and the time when a new populist party makes a breakthrough in national politics. These empirical observations could be rationalized by there being a party cartel that then breaks apart when the political environment changes, similar to the possible effect of entry on tacit collusion among firms (Brander and Spencer, 1985;MacLeod and Norman, 1987).…”

Section: Introductionmentioning

confidence: 93%

Vox Populi, Vox Dei? Tacit Collusion in Politics

Johansson

Kärnä

Meriläinen³

2021

SSRN Journal

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We study competition between political parties in repeated elections with probabilistic voting, allowing a multidimensional policy space and multiple political parties. This model entails multiple equilibria. When parties hold different opinions on some policy, they may take different policy positions that do not coincide with the median voter's preferred policy platform but converge towards it. In contrast, when parties have a mutual understanding on a particular policy, their policy positions may converge (on some dimension) but not to the median voter's preferred policy. Parties may collude with one another and take a position that differs from what the median voter prefers, despite political competition. Collusion may collapse, for instance, after the entry of a new political party. We substantiate the theoretical arguments with descriptive evidence using Swedish survey data on politicians and voters, which suggests that there is competition on some dimensions and collusion on others.

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Section: Introductionmentioning

confidence: 93%

Vox Populi, Vox Dei? Tacit Collusion in Politics

Johansson

Kärnä

Meriläinen³

2021

SSRN Journal

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“…We can relabel as t = 0 the beginning of the post-entry repeated price game. Given the equilibrium ( ) ( ) (11) and (12), it is always possible to find a set of prices { }p MacLeod et al (1987) show that the pricing strategy:…”

Section: The Modelmentioning

confidence: 99%

Should pricing policies be regulated when firms may tacitly collude?

Norman

2000

Market Structure and Competition Policy

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Abstract:Active antitrust policy may result in perverse effects detrimental to consumer and social welfare because such active policy affects market structure through its impact on the medium-and long-run decisions of firms. This paper investigates the effects of deregulation of firms' pricing policies in a dynamic setting that allows for tacit collusion. We show that, provided the consumer reservation price imposes no effective constraints on firms, price deregulation will lead to discriminatory prices that are almost always and almost everywhere lower than mill prices. By contrast, if the consumer reservation price is binding, the welfare properties of the two pricing policies will be reversed with consumers losing and firms gaining from discriminatory pricing. The required degree of price flexibility for this to happen is lower in more concentrated market structures. This implies that if market concentration is already high, deregulation of pricing policies is less likely to benefit consumers unless the regulatory authorities are willing to impose accompanying restrictions intended to reduce price flexibility.

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“…Following MacLeod et al (1987), I assume that firms employ the familiar "grim trigger strategy" to prevent entry into the industry. Specifically, suppose that at their given locations (L") firms in the cartel set collusive prices [pc(L')I.…”

Section: Dfmentioning

confidence: 99%

The Scope for Pure Profits in a Standard Location Model*

Damania

1994

Journal of Regional Science

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This paper examines the possibility of sustaining a collusive equilibrium in a standard location model. Drawing on recent developments in game theory, it is suggested that collusion is only feasible if market areas lie within a certain range. When market areas are large the threat of entry is likely to undermine any collusive agreement. In contrast when market areas are small, defection from the cartel is shown to be profitable. Thus collusion is shown to be feasible only when market areas and demand lie within certain bounds. More generally, this result appears to be consistent with the somewhat ambiguous empirical evidence which suggests that competitive pricing behavior is likely to prevail in periods of excessively high demand and during recessions.

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Competition, Tacit Collusion and Free Entry

Cited by 24 publications

References 6 publications

Vox Populi, Vox Dei? Tacit Collusion in Politics

Vox Populi, Vox Dei? Tacit Collusion in Politics

Should pricing policies be regulated when firms may tacitly collude?

The Scope for Pure Profits in a Standard Location Model*

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