CFDP 668

Profit-Sharing in a Collusive Industry


Publication Date: June 1983

Pages: 25


We study a model in which collusive duopolists divide up the monopoly profit according to their relative bargaining power. We are particularly interested in how the negotiated profit shares depend on the sizes of the firms. If each can produce at the same constant unit cost up to its capacity, we show that the profit per unit of capacity of the small firm is higher than that of the large one. We also study how the ratio of the negotiated profits depends on the size of demand relative to industry capacity, and how this ratio changes with variations in demand.


Published in European Economic Review (June 1983), 22(1): 59-74 [DOI]