Consequences of corporate debt financing in price agreements’ stability

The present article aims to show that price agreements are more unstable if their companies use debt as a financing instrument. Moreover, the higher the number of companies (that use debt) in a price agreement, the more instable the price agreement will be. Even when companies compete à la Bertrand and if debt financing is high, the duopoly of price agreement will be instable. When debt financing is present, we found there is a higher number of sub-game perfect Equilibria, in an a posteriori à la Cournot competition, then when debt financing is not present and that this (possible) existence of sub-game perfect Equilibria increases as the debt level of financing increases.