How should cartels react to entry triggered by demand growth?

João Correia-da-Silva, Joana Pinho*, Hélder Vasconcelos

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


We study the sustainability of collusion with optimal penal codes in markets where demand growth triggers the entry of a new firm. In contrast to grim trigger strategies, optimal penal codes make collusion easier to sustain before entry than after. This conclusion is robust to changes in the number of entrants and to the consideration of price-setting instead of quantity-setting. A comparison is given between different reactions of the incumbents to entry in terms of sustainability of collusion, incumbents' profits, entrant's profits, consumer surplus and social welfare. One of our findings is that the incumbent firms may prefer competition to collusion.
Original languageEnglish
Pages (from-to)209-255
Number of pages47
JournalB.E. Journal of Economic Analysis and Policy
Issue number1
Publication statusPublished - 1 Jan 2015
Externally publishedYes


  • Collusion
  • Demand growth
  • Optimal penal codes
  • Reactions to entry


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