Optimal cartel trigger price strategies

Robert H. Porter

doi:10.1016/0022-0531(83)90050-9

Optimal cartel trigger price strategies

Robert H. Porter^*

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

158 Scopus citations

Abstract

A dynamical model of industry equilibrium is described in which a cartel deters deviations from collusive output levels by threatening to produce at Cournot quantities for a period of fixed duration whenever the market price falls below some trigger price. In this model firms can observe only their own production level and a common market price. The market demand curve is assumed to have a stochastic component, so that an unexpectedly low price may signal either deviations from collusive output levels or a "downward" demand shock.

Original language	English (US)
Pages (from-to)	313-338
Number of pages	26
Journal	Journal of Economic Theory
Volume	29
Issue number	2
DOIs	https://doi.org/10.1016/0022-0531(83)90050-9
State	Published - Apr 1983

ASJC Scopus subject areas

Economics and Econometrics

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abstract = "A dynamical model of industry equilibrium is described in which a cartel deters deviations from collusive output levels by threatening to produce at Cournot quantities for a period of fixed duration whenever the market price falls below some trigger price. In this model firms can observe only their own production level and a common market price. The market demand curve is assumed to have a stochastic component, so that an unexpectedly low price may signal either deviations from collusive output levels or a {"}downward{"} demand shock.",

author = "Porter, {Robert H.}",

note = "Funding Information: * I have benefitted from the comments of James Friedman, Edward Green, Bengt Holmstrom, Andrew Postlewaite, Joseph Stiglitz, and Robert Willig, and from the financial support of the Canada Council and a Sloan Foundation grant to Princeton University. An earlier version of this paper was presented at the 1981 North American Summer Meeting of the Econometric Society in San Diego, California.",

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