Cartel formation in cournot competition with asymmetric costs: A partition function approach

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Abstract

In this paper, we use a partition function form game to analyze cartel formation among firms in Cournot competition. We assume that a firm obtains a certain cost advantage that allows it to produce goods at a lower unit cost. We show that if the level of the cost advantage is “moderate”, then the firm with the cost advantage leads the cartel formation among the firms. Moreover, if the cost advantage is relatively high, then the formed cartel can also be stable in the sense of the core of a partition function form game. We also show that if the technology for the low-cost production can be copied, then the cost advantage may prevent a cartel from splitting.

Original languageEnglish
Article number14
Pages (from-to)1-16
Number of pages16
JournalGames
Volume12
Issue number1
DOIs
Publication statusPublished - 2021 Mar

Keywords

  • Cartel formation
  • Cournot competition
  • Partition function form game
  • Stability

ASJC Scopus subject areas

  • Statistics and Probability
  • Statistics, Probability and Uncertainty
  • Applied Mathematics

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