Partial Collusion with Asymmetric Cross-Price Effects

Abstract

Asymmetries in cross-price elasticities have been demonstrated by several empirical studies. In this paper we study from a theoretical stance how introducing asymmetry in the substitution e¤ects in ‡uences the sustainability of collusion. We characterize the equilibrium of a linear Cournot duopoly with substitute goods, and consider substitution e¤ects which are asymmetric in magnitude. Within this framework, we study partial collusion using Friedman (1971) solution concept. Our main result shows that the interval of quantities supporting collusion in the asymmetric setting is always smaller than the interval in the symmetric benchmark. Thus, the asymmetry in the substitution e¤ects makes collusion more di¢ cult to sustain. This implies that previous Antitrust decisions could be reversed by considering the role of this kind of asymmetry.