*We thank Claudio Agostini, Jeremy Bulow, the Editor, Joe Harrington, Bill Hogan, Jason Lepore, Salvador Valdés, Felipe Zurita, two anonymous referees and seminar participants for helpful discussions and comments. Part of this work was carried out while Montero was visiting Harvard's Kennedy School of Government (KSG) under a Repsol YPF-KSG Research Fellowship. Montero also gratefully acknowledges financial support from Fondecyt (1051008) and Instituto Milenio SCI (P05-004F), and Guzmán from PUC's Mineral Economics Program.
OUTPUT-EXPANDING COLLUSION IN THE PRESENCE OF A COMPETITIVE FRINGE*
Article first published online: 1 MAR 2010
© 2010 The Authors. Journal compilation © 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
The Journal of Industrial Economics
Volume 58, Issue 1, pages 106–126, March 2010
How to Cite
MONTERO, J.-P. and GUZMAN, J. I. (2010), OUTPUT-EXPANDING COLLUSION IN THE PRESENCE OF A COMPETITIVE FRINGE. The Journal of Industrial Economics, 58: 106–126. doi: 10.1111/j.1467-6451.2010.00410.x
- Issue published online: 1 MAR 2010
- Article first published online: 1 MAR 2010
Following the structure of many commodity markets, we consider a few large firms and a competitive fringe of many small suppliers choosing quantities in an infinite-horizon setting subject to demand shocks. We show that a collusive agreement among the large firms may not only bring an output contraction but also an output expansion (relative to the non-collusive output level). The latter occurs during booms and is due to the strategic substitutability of quantities. We also find that the time at which maximal collusion is most difficult to sustain can be either at booms or recessions. The international copper cartel of 1935–39 is used to illustrate some of our results.