Does cooperation in manufacturing foster tacit collusion?

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Dokumentart: WorkingPaper
Date: 2003
Source: Tübinger Diskussionsbeiträge der Wirtschaftswissenschaftlichen Fakultät ; 261
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Produktion
Other Keywords: Kollusion
Manufacturing , Cooperative production , Dynamic competition , Collusion
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This paper analyzes the effect of cooperation in manufacturing on firms' inclination to collude in the market. Compared to non-cooperation in manufacturing, coordination of the investments in production yields a higher competitive profit. If firms intensify cooperation and produce in a joint plant, this profit is still higher due to lower investment costs. Since firms return to competition after a defection from the collusive agreement, a high competitive profit implies a weak punishment. Collusion is thus more difficult, the closer firms cooperate in manufacturing. Moreover, given competition or collusion in the market, joint production yields the highest profit and welfare.

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