Consumer-surplus-enhancing collusion and trade

George Deltas, Alberto Salvo, Helder Vasconcelos

Research output: Contribution to journalArticlepeer-review

Abstract

That collusion among sellers hurts buyers is a central tenet in economics. We provide an oligopoly model in which collusion can raise consumer surplus. A differentiated-product duopoly operates in two geographically separated markets. Each market is home to a single firm, but can import, at a cost, from the foreign firm. Under some circumstances, a perfect cartel, relative to duopolistic competition, raises the price of the imported good and lowers the price of the home good. This raises welfare for most consumers and increases aggregate consumer surplus. A similar possibility result applies to autarky. Our analysis applies beyond the spatial setting.

Original languageEnglish (US)
Pages (from-to)315-328
Number of pages14
JournalRAND Journal of Economics
Volume43
Issue number2
DOIs
StatePublished - Jun 1 2012

ASJC Scopus subject areas

  • Economics and Econometrics

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