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The profit-sharing rule that maximizes sustainability of cartel agreements

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


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