The Emergence and Stability of Heterogeneous Cartels
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Publication date: 2011-10-31
GNPJE 2011;251(10):39–57
The article focuses on the emergence and operation of cartels in sectors in which companies differ in terms of production costs. The authors show that stable cartels can operate in sectors made up of enterprises that are heterogeneous in terms of costs and based on price leadership. However, when it comes to the cartel formation process, there is a distinct difference between homogeneous and heterogeneous sectors, Prokop says. While the formation of a cartel in the case of homogenous firms may be difficult due to the “free-rider” problem, the author notes, in the case of heterogeneous companies no such obstacles exist and it can be expected that the process of creating a stable cartel will end in success. The analysis was made using the author’s own model of the cartel formation process in the form of a single-period non-cooperative game with simultaneous decisions made by participants. To investigate the behavior of enterprises in the formation and operation of cartels, the Nash equilibrium concept was used. On the basis of the results obtained, it can be concluded that in the case of a sector with heterogeneous enterprises, the role of antitrust offices significantly increased in comparison to markets with homogenous firms, Prokop says. The theoretical analysis made by the author is illustrated with a case study for a district heating pipe cartel.