On the Stability of Collusive Price Leadership

Abstract

The gains from cartel formation and the stability of a dominant cartel are investigated for the price-leadership model. We show that there is a general interest in the establishment of a cartel with the competitive fringe reaping a disproportionate share of the benefits. In contrast to results involving a continuum of firms, with a finite number of firms (each with the same cost curve) there is always a stable dominant cartel.A propos de la stabilité d'une structure de marché caractérisée par la collusion de firmes dominantes pourétablir un leadership de prix. Le mémoireétudie les gains dérivés de la formation d'un cartel et la stabilité d'un cartel dominant dans le cadre d'un modèle de leadership de prix de la firme dominante. On montre qu'il y a un intérêt généralà créer un cartel même si les firmes satellitesà la périphérie du cartel ramassent une part plus que proportionnelle des bénéfices. Contrairementà ce que l'on observe quand on est en présence d'un continuum de firmes, quand leur nombre est fini -chacune avec la même courbe de coûts -il y a toujours un cartel dominant stable.

Dynamic Effects on the Stability of International Environmental Agreements

“…It follows that the costs in equilibrium for a coalition member (C c ) and for an outsider (C o ) are given by The usual approach to the theory on stable International Environmental Agreements (e.g., [5,2]) is based on the ideas developed for cartel stability ( [1]) and requires what is called internal and external stability. Internal stability means that a country does not have an incentive to leave the coalition, that is the costs of an outsider to the coalition of size m-1 must be larger than (or equal to) the costs of a member of the coalition of size m. External stability means that a country does not have an incentive to join the coalition, that is the costs of a member of the coalition of size m+1 must be larger than the costs of an outsider to the coalition of size m. This corresponds to the Nash equilibrium of the so-called open-membership game in which the countries first decide on whether they want to be a member of the coalition or not and then choose their abatement levels ( [4,17,11]).…”

“…This is called a difference game because the state transition is given by the difference equation (1). It is assumed that the countries can observe the emission levels and can therefore condition their abatement activities a i at time t on the level of emissions e at time t. Furthermore, it is assumed that the countries cannot credibly commit to a strategy beforehand and may adjust their strategy at each point in time.…”

“…The size 1 coalition or the feedback Nash equilibrium between individual countries belongs to this set. Therefore, in the first step of the algorithm m + = 1 and k o+ = k o (1). Then k d (2) can be calculated and compared to k c (2).…”

International Environmental Agreements with mixed strategies and investment

“…A major non-cooperative strand uses the definition of cartel stability in a participation game (D'Aspremont et al, 1983). In this game, countries first make a binary decision, whether to join or stay out of an IEA, and then the resulting IEA decides on the level of abatement.…”

Economic Targets and Loss‐Aversion in International Environmental Cooperation

“…In this context, a country prefers to sustain cooperation on agreed-upon emission policies, as long as the discounted future welfare losses from a breakdown in international environmental cooperation outweigh the onetime gain of a unilateral deviation from the cooperative path. Note that we abstract completely from any participation considerations, which have been at the center of IEA literature (Barrett, 1994;Carraro and Siniscalco, 1993;D'Aspremont et al, 1983;Hoel, 1992). 7 Instead, we look for the sustainability of a cooperative emission level, particularly the most cooperative emission level, by countries aiming to achieve their economic targets and that are averse to economic losses, within the context of a selfenforcing IEA involving full participation.…”