Publication: Strategic profit sharing leads to collusion in Bertrand oligopolies
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2010-10
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Abstract
One simple way to endogenize the degree of cross ownership in an industry
is that rms give away part of their pro ts. We show that this possibility of
unilaterally giving pro ts away to the rival previous to Bertrand competition
opens the door to multiple equilibria. In the symmetric duopoly with con-
stant marginal costs any price between the cost and the monopolistic price
can be sustained in a subgame perfect equilibrium. Thus, tacit collusion in
the one shot game can be achieved. Further, any market share can also be
sustained for any equilibrium price. These results are extended to more than
two rms and to asymmetric costs.
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Profit sharing, Oligopoly, Collusion, Cross ownership, Bertrand