We extend Green and Porter's (1984) model to considerentry, by studying twoalternative types of incumbent firms' post-entryreactions: cartel breakdownand accommodation of the entrants. We show thatcooperation is more unstableif entry costs are low and if incumbents accommodatethe new firms. We thentest the applicability of the theoretical model tothe type of collusionthat characterizes the nineteenth-century railroadcartel in the US. Theresults provide support for the model predictions.In particular, cartelstability has been found to be negatively correlatedwith the number of firms in the agreement.
Review of Industrial Organization – Springer Journals
Published: Sep 21, 2004
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