Stable cartels with a Cournot fringe

TLDR: In this paper, the authors adopt the framework of this literature and build on it by analyzing the size and uniqueness of the stable cartel when the fringe is Coumot, and the endogeneity of Courot versus Bertrand behavior within the fringe, given a stable cartel; possible endogeneity, Stackelberg sequence of play between the cartel and the fringe; and effects of excludability from the cartel Welfare effects are also briefly analyzed.

Abstract: The notion of an industry structure characterized by a small group of dominant firms plus a competitive fringe has a long tradition More recent work explores conditions under which such a pattern constitutes an equilibrium, assuming collusive behavior among one group of firms and price-taking behavior within the fringe [2; 3; 4; 5; 6; 14; 17] The alternative case of a Courot fringe is analyzed briefly in Spulber [22, 471-73] and more extensively in Martin [14] Here we adopt the framework of this literature and build on it by analyzing the size and uniqueness of the stable cartel when the fringe is Coumot; endogeneity of Courot versus Bertrand behavior within the fringe, given the stable cartel; possible endogeneity of the Stackelberg sequence of play between the cartel and the fringe; and effects of excludability from the cartel Welfare effects are also briefly analyzed Alternatively, cooperation within a cartel is equivalent to the outcome of horizontal mergers in the absence of synergies As such, this paper presents a contrasting result to the analysis of exogenous Cournot mergers in Salant, Switzer, and Reynolds [18], endogenizes the merger decision, and demonstrates how a theory of mergers can be predicated on a Cournot fringe