Abuse of Competitive Fringe

13 Pages Posted: 31 Jan 2005

See all articles by Carlo Capuano

Carlo Capuano

CSEF - University of Naples Federico II; CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

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Date Written: January 31, 2005

Abstract

The purpose of this article is to analyze how the presence of a competitive fringe, composed by price taker firms, can affect the sustainability of collusive equilibria. Our starting point is that there exists a diffused misunderstanding about its strategical role as collusive minus factor. We deny that. In fact, if it is true that in single dominance cases the presence of a competitive fringe significantly reduces the price increasing profitability and the leader market power, when we consider collective dominance cases the deviation profitability and the punishment mechanism become crucial. In this paper, after introducing a minimal structural and strategical framework needed for describing this kind of competition, we prove that not only the presence of a competitive fringe is a collusive plus factor, but also that there exists a critical dimension of the fringe such that collusion is a Nash equilibrium of the static game.

Keywords: Collusion, oligopoly, competitive fringe, Bertrand-Nash, DRS

JEL Classification: D43, L1, L13

Suggested Citation

Capuano, Carlo, Abuse of Competitive Fringe (January 31, 2005). Available at SSRN: https://ssrn.com/abstract=657184 or http://dx.doi.org/10.2139/ssrn.657184

Carlo Capuano (Contact Author)

CSEF - University of Naples Federico II ( email )

Via Cintia 26
Napoli
Italy

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

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