On the Relationship between Product Substitutability and Tacit Collusion

Managerial and Decision Economics, September 1999

Rajeev K. Tyagi

Abstract

This paper shows that the relationship between the degree of product substitutability and the firms' ability to sustain tacit collusion may be nonmonotonic. Thus, in markets where the same set of competitors interact repeatedly over time, it may not be an optimal strategy to design products to be maximally differentiated.

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