Institut D'Economie Industrielle, Université des Sciences Sociales, Place Anatole-France, 31042 Toulouse Cedex, France
Econometric Analysisof Collusive Behaviorin a Soft-Drink Market
Article first published online: 13 JAN 2005
Journal of Economics & Management Strategy
Volume 1, Issue 2, pages 277–311, Summer 1992
How to Cite
Gasmi, F., Laffont, J.J. and Vuong, Q. (1992), Econometric Analysisof Collusive Behaviorin a Soft-Drink Market. Journal of Economics & Management Strategy, 1: 277–311. doi: 10.1111/j.1430-9134.1992.00277.x
Preliminary versions of this paper were presented at the European and North American Meetings of the Econometric Society in Bologna, August 1988, and New York, December, 1988, and at the European Economic Association Meeting in Augsburg, August 1989. The authors are grateful to an anonymous referee for useful comments. Initial work was done while the authors were at the California Institute of Technology. They thank L. Donnelly for efficient typing. The views expressed in this paper do not represent those of Bellcore or any of its owners.
- Issue published online: 13 JAN 2005
- Article first published online: 13 JAN 2005
This paper proposes an empirical methodology for studying various (implicit or explicit) collusive behaviors on two strategic variables, which are price and advertising, in a differentiated market dominated by a duopoly. In addition to Nash or Stackelberg behaviors, we consider collusion on both variables, collusion on one variable and competition on the other, etc. Using data on the Coca-Cola and Pepsi-Cola markets from 1968 to 1986, full information maximum likelihood estimation of cost and demand functions are obtained allowing for various collusive behaviors. The collusive hypothesis is not rejected, and the best form of collusive behavior is selected via nonnested testing procedures. Using the best model, Lerner indices are computed for both duopolists to provide summary measures of market power. Finally, our approach is contrasted with the conjectural variation approach and is shown to give superior results.