Joana Pinho

How Should Cartels React to Entry Triggered by Demand Growth

Abstract We study the sustainability of collusion with optimal penal codes in markets where demand growth triggers the entry of a new firm. In contrast to grim trigger strategies, optimal penal codes make collusion easier to sustain before entry than after. This conclusion is robust to changes in the number of entrants and to the consideration of price-setting instead of quantity-setting. A comparison is given between different reactions of the incumbents to entry in terms of sustainability of collusion, incumbents’ profits, entrant’s profits, consumer surplus and social welfare. One of our findings is that the incumbent firms may prefer competition to collusion.

Productivity Shocks in a Union-Duopoly Model: Productivity shocks in union-duopoly

We consider an industry where firms are asymmetric in terms of productivity. Wages and employment are determined at the firm-level and are the result of sequential bargaining between unions and firms, with wages being negotiated first. We characterise the equilibrium and compare the outcomes in the two firms (wages, employment and surplus of all economic agents). A productivity shock affecting the most efficient firm is socially desirable, by increasing the surplus of consumers, workers and firms. The same may not be true when the productivity shock affects the least efficient firm. In this case, the consumers’ gain may not be enough to outweigh the losses in aggregate worker surplus and in the industry profit.