Price staggering in cartels |
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| Institution: | 1. School of Economics, University of Queensland, St Lucia QLD 4069, Australia;2. Department of Economics, Tulane University, New Orleans, USA;1. Toulouse School of Economics, France;2. Hanken School of Economics and Helsinki Graduate School of Economics, Finland;1. Department of Economics, Michigan State University, 486 West Circle Drive, East Lansing, MI 48824;2. Department of Economics, Nazarbayev University, 53 Kabanbay Batyr, Astana 010000, Kazakhstan;3. Department of Economics, Michigan State University, 486 West Circle Drive, East Lansing, MI 48824;1. Johannes Kepler University Linz, Wifo Wien; IZA, Bonn, CESifo Munich, Germany;2. Johannes Kepler University Linz, Germany;1. Goethe-Universität Frankfurt, Theodor-W.-Adorno-Platz 4, Frankfurt 60323, Germany;2. Düsseldorf Institute for Competition Economics (DICE), Heinrich-Heine-Universität Düsseldorf, Universitätsstr. 1, Düsseldorf 40225, Germany |
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| Abstract: | In this paper we investigate the optimal organization of staggered price increases in cartels. Staggered price increases impose a cost during cartel formation as the price leader initially loses sales. We show that for intermediate discount factors, staggered price increases can only be sustained when the increase is neither too small nor too large. When a cartel executes two consecutive price increases, the choice between using the same leader or alternating leadership depends on the initial price level in the industry. We also discuss the choice between simultaneous and staggered price increases with an exogenous antitrust detection function, the allocation of price leadership with cost asymmetry, and the effect of product differentiation on price staggering. |
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