Leadership

Does Cartel Leadership Facilitate Collusion?

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Executive Summary

The authors discuss the implications of a Stackelberg sequence of play between a cartel and the fringe. They consider two different approaches to collusion: one-stage static model and a multi-period oligopoly model. The main result is that in the static model with quantity-setting firms stable cartels only exist when cartel firms behave as a Stackelberg leader. It is also shown that in the supergame approach the cartel is always more easily sustained with the leadership than in the simultaneous-moves game. The opposite result is obtained in a price-setting supergame with differentiated products.

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