Abstract
We consider the collective incentives of buyers and sellers to form cartels in markets with decentralized trade and pairwise bargaining. Cartels are coalitions of buyers or sellers that limit market participation and compensate inactive members for their abstention. In stable market outcomes, cartels set Nash equilibrium quantities and cartel memberships are immune to deviations. The set of stable market outcomes is non-empty and its full characterization is provided. Stable market outcomes are of two types: (i) at least one cartel restrains trade and market participation is balanced; (ii) only one cartel is active and it reduces trade slightly below the opponent’s.
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Burani, N., Ponsati, C. Countervailing power? Collusion in markets with decentralized trade. Rev Econ Design 15, 91–120 (2011). https://doi.org/10.1007/s10058-009-0093-8
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DOI: https://doi.org/10.1007/s10058-009-0093-8
Keywords
- Decentralized trade
- Pairwise bargaining
- Bilateral cartel formation
- Cartel stability
- Countervailing power