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| Author: | Dana, J.D. Jr. Fong, Y-F. |
| Title: | Long-lived consumers, intertemporal bundling and collusion |
| Journal: | Journal of Industrial Economics
2011 : DEC, VOL 59:4, p. 609-629 |
| Index terms: | contracts prices industrial organization |
| Freeterms: | price wars consumer surplus |
| Language: | eng |
| Abstract: | In a repeated price game with long but finitely-lived consumers, long-term contracts ease collusion. Intertemporal bundling diminishes the gains from business stealing but hardly affects the cost of the resulting price war. As consumers anticipate price wars to occur in the future, the maximum deviation profit per consumer is a single period of consumer surplus. Hence long-term contracts do not strengthen the incentive to deviate per consumer, but do reduce the number of consumers currently in the market by locking them into past contracts. Therefore, tacit collusion is sustainable for a broader range of discount factors and market structures. |
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