Does Cartel Leadership Facilitate Collusion?

Date Added: Nov 2009
Format: PDF

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.