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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2006:21:
Bargaining in Collusive Markets

Ola Andersson ()

Abstract: In this paper we investigate collusion in an infinitely repeated Bertrand duopoly where firms have different discount factors. In order to study how a collusive agreement is reached we model the equilibrium selection as an alternating-offer bargaining game. The selected equilibrium has several appealing features: First, it is efficient in the sense that it entails immediate agreement on the monopoly price. Second, the equilibrium shows how discount factors affect equilibrium market shares. A comparative statics analysis on equilibrium market shares reveals that changes in discount factors may have ambiguous effects on market shares.

Keywords: Bargaining; different discount factors; explicit collusion; market shares; (follow links to similar papers)

JEL-Codes: C72; D43; L11; L41; (follow links to similar papers)

21 pages, November 14, 2006

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