Competitiveness and Stability of Collusive Behavior

Posted by D. Daniel Sokol

Toshihiro Matsumura (University of Tokyo – Institute of Social Science) and Noriaki Matsushima (Osaka University – Institute of Social and Economic Research) analyze Competitiveness and Stability of Collusive Behavior

ABSTRACT: We investigate the relationship between the degree of competition and the stability of collusive behaviour, by introducing the element of relative performance in the objective functions of the firms. We show that an increase in the degree of competition destabilizes the collusion. This relation differs starkly in the standard symmetric Cournot and Bertrand duopoly models, with the former being more unstable than the latter.