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Impacts of entry on collusion sustainability in markets with a general evolution of demand

Universidade de Évora
Colégio Espírito Santo - Sala 124

07/02/2014 03:30 pm

Joana Pinho (Faculdade de Economia da Universidade do Porto)

Resumo/Abstract: We study sustainability of collusion in markets where demand growth induces the entry of a new firm. If profitable, entry occurs as soon as demand hits a certain threshold, which is lower under collusion than in the punishment path. Delaying entry constitutes, therefore, an additional incentive for deviating before entry. As a consequence, the period that immediately precedes entry is the most critical for collusion sustainability before entry. If the cartel breakdown does not delay entry, collusion is, typically, more difficult to sustain after entry than before entry. If entry is not profitable in the punishment path, collusion can only be sustained if collusive profits after entry are higher than punishment profits before entry.

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