Publication: Collusion and Customization
Authors
Martínez Sánchez, Francisco
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Publisher
World Scientific Publishing
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DOI
10.1142/S0219198920500073
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info:eu-repo/semantics/article
Description
© 2020. This document is made available under the CC-BY 4.0 license http://creativecommons.org/licenses/by /4.0/
This document is the submitted version of a published work that appeared in final form in International Game Theory Review.
Abstract
We analyze the effect of customizing a product on the ability of firms to tacitly collude on prices. Following [Bar-Isaac et al. [2014] Targeted product design: Locating inside the Salop circle, Mimeo], we allow firms to be located inside the circle in the Salop model [Salop, S. [1979] Monopolistic competition with outside goods, Bell J. Econ., 10(1), 141–156]. Our analysis shows that the effect of product customization on the stability of collusion depends on the sensitivity of consumers’ utility to the degree of customization. In particular, if that sensitivity is low enough, then greater customization facilitates collusion. Otherwise, greater customization hinders collusion if consumers value the product little.
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Citation
International Game Theory Review VOL. 22, NO. 04
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