We consider a mixed oligopoly of one public and N private firms where goods are horizontally differentiated. In our setting, an interdependent payoff structure characterizes the degree of collusion among private firms. We show that, whereas in the Bertrand model, private firms are willing to collude as much as possible, in the Cournot model, the existence of a public firm reduces the scope of collusion. We also prove that the classic discussion comparing price and quantity competition crucially depends on market collusion. More precisely, price competition unambiguously yields larger profits for private firms only if collusion is high enough. In an infinitely repeated game, we prove that collusion is easier to sustain in a larger oligopoly because, in this case, a larger N helps mitigate the effect of the public firm on private firms’ collusion sustainability. Finally, we also find tha...

In this paper we investigate the connection between the number of competitors and the sustainability of collusion within the context of a infinitely repeated symmetric Cournot model where only a subset of firms cooperate. We show that, in our model, an increase in the number of cartel firms may increase collusion likelihood by diminishing the negative effects for collusion of the existence of a competitive fringe. Also, we show that an increase in the number of fringe firms makes collusion harder to sustain.

We use a non-spatial (Chamberlinian) product differentiation model to analyze the welfare effects of horizontal mergers with quantity competition. We argue that (i) mergers can be welfare enhancing if the degree of product differentiation increases after the merger; and (ii) privately profitable mergers can also increase welfare. Consequently in this paper we demonstrate that the degree of product differentiation is a crucial factor to assess the welfare effects of a merger.

We consider a multi-period oligopoly model to analyze cartel sustainability where a subset of collusive firms is exogenously given. We assume that in case of cheating only the cheater is expelled from the cartel and collusion continues without the cheater. We show that, in our model, when firms compete in quantities and the cartel is sufficiently small, a Stackelberg leader cartel can always be sustained if firms are patient enough. Furthermore, in this case collusion is more easily sustained than when firms play grim trigger strategies. The opposite result is obtained in a price-setting supergame with differentiated products.

We use a non-spatial (Chamberlinian) product differentiation model to analyze the welfare effects of horizontal mergers with quantity competition. We argue that (i) mergers can be welfare enhancing if the degree of product differentiation increases after the merger; and, (ii) privately profitable mergers can also increase welfare. Consequently, in this paper we demonstrate that the degree of product differentiation is a crucial factor to assess the welfare effects of a merger.