Journal of Political Economy Vol. 79 No. 6 1971
Collusion and Entry
Abstract
The purpose of this paper is to analyze the problems faced by a collusion which prices above the limit price. Three problems are analyzed: (1) When should the collusive firms lower industry price to the limit price to prevent further entry? (2) Under what conditions should the collusive firms sacrifice immediate profits for a lower rate of entry which raises future profits? (3) How should the collusive firms respond to an actual lump of entry? It is shown that present value maximization by the collusive firms may require that immediate profits be sacrificed for a lower rate of entry. However, whether present value maximization requires either that immediate profits be sacrificed or maximized, the collusive firms should reduce output when faced with a lump of entry.
- DOI
- 10.1086/259834
- Volume
- 79
- Issue
- 6
- Pages
- 1258-1277
- Language
- en
- Sources
- openalex crossref