Cartel Stability under Quality Differentiation
arXiv:1812.10293 · doi:10.1016/j.econlet.2018.10.024
Abstract
This note considers cartel stability when the cartelized products are vertically differentiated. If market shares are maintained at pre-collusive levels, then the firm with the lowest competitive price-cost margin has the strongest incentive to deviate from the collusive agreement. The lowest-quality supplier has the tightest incentive constraint when the difference in unit production costs is sufficiently small.
17 pages, including 3 additional Appendices