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]