The profit-sharing rule that maximizes sustainability of cartel agreements

João  Correia-da-Silva; Joana  Pinho

doi:10.3934/jdg.2016007

Article Contents

2016, Volume 3, Issue 2: 143-151. Doi: 10.3934/jdg.2016007

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The profit-sharing rule that maximizes sustainability of cartel agreements

João Correia-da-Silva^1, and
Joana Pinho^2,

1.
Toulouse School of Economics, 21 Allée de Brienne, 31000 Toulouse
2.
CEF.UP, Faculdade de Economia, Universidade do Porto, Rua Dr. Roberto Frias, 4200-464 Porto

Received: October 2015

Revised: April 2016

Published: April 2016

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Abstract

We study the profit-sharing rule that maximizes the sustainability of cartel agreements when firms can make side-payments. This rule is such that the critical discount factor is the same for all firms (``balanced temptation''). If a cartel applies this rule, contrarily to the typical finding in the literature, asymmetries among firms may increase the sustainability of the cartel. In an illustrating example of a Cournot duopoly with asymmetric production costs, the sustainability of collusion is maximal when firms are extremely asymmetric.

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Mathematics Subject Classification: Primary: 91A80; Secondary: 91A20.

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