Abstract

Among the dominant firms in the US meat and grain business, many produce several products, some of which are demand-related. Yet, virtually all research on collusion among those firms focuses on a single product. This paper uses a game-theoretic model to investigate the conditions under which multi-product food firms producing demand-related goods have incentives to collude, and examines the welfare implications of collusion for participants in a vertical marketing chain. I show that multi-product food firms have a greater incentive to collude when they become more efficient. In contrast to previous work, I find that the effect of the degree of product substitutability on collusion sustainability hinges on the cost effect arising from joint production. From a policy standpoint, I show that mergers between single-product firms producing demand-related goods under certain conditions may hinder collusion.

Submitted: April 6, 2007 · Accepted: May 22, 2007 · Published: May 25, 2007

Recommended Citation

Bouras, Brahim (2007) "Market and Welfare Effects of Collusion with Reference to Multi-Product Food Oligopoly and Oligopsony," Journal of Agricultural & Food Industrial Organization: Vol. 5 : Iss. 1, Article 5.
Available at: http://www.bepress.com/jafio/vol5/iss1/art5