TY - UNPB

T1 - Product differentiation, price discrimination and collusion

AU - Colombo, Stefano

PY - 2009

Y1 - 2009

N2 - The existing literature which analyses the relationship between the product differentiation degree and the sustainability of a collusive agreement on price assumes that firms cannot price discriminate, and concludes that there is a negative relationship between the product differentiation degree and the critical discount factor. This paper, in contrast, assumes that firms are able to price discriminate. Within the Hotelling framework, three different collusive schemes are studied: optimal collusion on discriminatory prices; optimal collusion on a uniform price; collusion not to discriminate. We obtain that the critical discount factor of the first and the third collusive scheme does not depend on the product differentiation degree, while the critical discount factor of the second collusive scheme depends positively on the product differentiation degree. Moreover, we show that suboptimal collusion is more difficult to sustain than optimal collusion.

AB - The existing literature which analyses the relationship between the product differentiation degree and the sustainability of a collusive agreement on price assumes that firms cannot price discriminate, and concludes that there is a negative relationship between the product differentiation degree and the critical discount factor. This paper, in contrast, assumes that firms are able to price discriminate. Within the Hotelling framework, three different collusive schemes are studied: optimal collusion on discriminatory prices; optimal collusion on a uniform price; collusion not to discriminate. We obtain that the critical discount factor of the first and the third collusive scheme does not depend on the product differentiation degree, while the critical discount factor of the second collusive scheme depends positively on the product differentiation degree. Moreover, we show that suboptimal collusion is more difficult to sustain than optimal collusion.

KW - Horizontal differentiation

KW - Price discrimination

KW - Tacit collusion

KW - Horizontal differentiation

KW - Price discrimination

KW - Tacit collusion

UR - http://hdl.handle.net/10807/4907

M3 - Working paper

BT - Product differentiation, price discrimination and collusion

ER -