Cooperation and Efficiency in Markets

The book deals with collusion between firms on both sides of a market that is immune to deviations by coalitions. We study this issue using an infinitely countably repeated game with discounting of future single period payoffs. A strict strong perfect equilibrium is the main solution concept that we apply. It requires that no coalition of players in no subgame can weakly Pareto improve the vector of continuation average discounted payoffs of its members by a deviation. If the sum of firms' average discounted profits is maximized along the equilibrium path then the equilibrium output of each type of good is produced with the lowest possible costs. If, in addition, all buyers are retailers (i.e., they resell the goods purchased in the analyzed market in a retail market) then the equilibrium vector of the quantities sold in the retail market is sold with the lowest possible selling costs. We specify sufficient conditions under which collusion increases consumer welfare.

The unified analysis of existence and efficiency properties of equilibria provides justification for economic policy reforms The analysis of cooperative managerial capitalism is interesting for economic historians The analysis of inter-firm cooperation without long term contracts is applicable in management and business law Includes supplementary material: sn.pub/extras

Autorentext
Milan Horniaek is currently an Associate Professor of Economics at the Institute of Public Policy and Economics of the Faculty of Social and Economic Sciences of the Comenius University in Bratislava. His research interests include non-cooperative game theory, industrial organization, antitrust policy and microeconomic theory. The analysis of equilibria in infinite horizon non-cooperative games that are immune to deviations by coalitions is the most important part of his research.

Inhalt
Introduction.- Model.- Existence of an SRPE and an SSPE.- Efficiency of an SRPE and an SSPE.- Afterword.