1991/11/01 by Joseph E. Harrington
Decision Sciences · Economics, Econometrics and Finance · Business, Management and Accounting · #Auction Theory and Applications #Merger and Competition Analysis #Consumer Market Behavior and Pricing
paper · doi:10.2307/2527033
Applying a selection criterion that uses both subgame perfection and the Nash bargaining solution, this paper investigates the relationship between firms' cost functions and collusive behavior. It is found that the optimal collusive price exceeds the price that the low-cost firm would set if it was a monopolist. Comparative statics reveal that the optimal collusive price is increasing in the low-cost-firm's unit cost, but is decreasing in the high-cost-firm's unit cost when the cost differential between firms is sufficiently large. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.