The profit-sharing rule that maximizes sustainability of cartel agreements

Joao Correia-da-Silva and Joana Pinho

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: We propose a profit-sharing rule that maximizes sustainability of cartel agreements. This rule is such that the critical discount factor is the same for all the firms. If a cartel applies this rule, then asymmetries among firms may not hinder collusion (contrarily to the typical finding in the literature). In the simplest case of a Cournot duopoly in which firms differ in their stocks of capital, we find that the cartel is the least sustainable when one of the firms is approximately two times bigger than the other.

Keywords: Collusion sustainability; Profit-sharing rule. (search for similar items in EconPapers)
JEL-codes: L11 L13 L41 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2012-08
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:463

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