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COMPETITIVENESS AND STABILITY OF COLLUSIVE BEHAVIOR

Authors


Noriaki Matsushima, Institute of Social and Economic Research, Osaka University, Mihogaoka 6-1, Ibaraki, Osaka 567-0047, Japan. Tel: +81-6-6879-8571; Fax: +81-6-6879-8583; Email: nmatsush@iser.osaka-u.ac.jp. The authors would like to thank the editor and anonymous referees for constructive and helpful comments. They acknowledge a Grant-in-Aid from the Japanese Ministry of Education, Science, Sports, and Culture. Any errors are the responsibility of the authors.

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.

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