Centre for Development Economics
Department of Economics

Delhi School of Economics


Multi-market contact, cartel and product quality


Neelanjan Sen
(Madras School of Economics)

Joint  with

Uday Bhanu Sinha
(Delhi School of Economics)

 (Wednesday, September 20, 2023, at 3:30 PM IST)
Venue: Amex Room


This paper develops a model of multi-market contact and collusion where product quality is chosen by firms in different markets. We show how multi-market contact and collusion can affect the quality choices adversely in the markets such that the availability of high-quality product reduces and the availability of low-quality product increases. There are two markets with identical demand which are geographically separated but served by both firms. Firms produce goods which are horizontally and vertically differentiated. It is shown that the firms can coordinate and collude during the quality choice stage, and as a result of this collusion in quality choice, the firms will under-invest in product quality improvement (and thereby save the fixed cost), leading to the availability of more low-quality products and the availability of less high-quality products in the market. We also show that when the fixed cost is low so that producing only the high-quality product is the unique Nash equilibrium, then welfare may increase if the firms form the cartel and either of the firms switch to the lower quality product (instead of producing the higher quality product). Otherwise, after collusion, welfare always reduces.
All are cordially invited.

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