FEEM working papers "Note di lavoro"
2020.20
Date: 4/11/2020

Collusion in Quality-Segmented Markets


Authors:
Iwan Bos (Maastricht University); Marco A. Marini (University of Rome La Sapienza, CREI)
JEL n.: D4, L1
Keywords: Partial Cartels, Price Collusion, Market Segmentation, Vertical Differentiation

Abstract

This paper analyzes price collusion in a repeated game with two submarkets; a standard and a premium quality segment. Within this setting, we study four types of price-fixing agreement: (i) a segment-wide cartel in the premium submarket only, (ii) a segment-wide cartel in the standard submarket only, (iii) two segment-wide cartels, and (iv) an industry-wide cartel. We present a complete characterization of the collusive pricing equilibrium and examine the corresponding effect on market shares and welfare. Partial cartels operating in a sufficiently large segment lose market share and the industry-wide cartel prefers to maintain market shares at pre-collusive levels. The impact on consumer and social welfare critically depends on the cost of producing quality. Moreover, given that there is a cartel, more collusion can be beneficial for society as a whole.

***

Suggested citation: Bos, I., M. A. Marini, (2020), 'Collusion in Quality-Segmented Markets', Nota di Lavoro 20.2020, Milano, Italy: Fondazione Eni Enrico Mattei

Download file
Download file

FEEM Newsletter & Update

Subscribe to stay connected.

Your data will be processed by FEEM - Eni Enrico Mattei Foundation - Data Controller - to receive the Foundation's Newsletter & Update via e-mail. To send the requested information, the Data Controller uses e-mail sending service providers established in the U.S.A .: for this, your consent to the transfer of your email address to the U.S.A. is required, without which it will not be possible to comply with your request. We invite you to consult the complete information to obtain detailed information to protect your rights.