A proposed mechanism for cartel destabilization
Date
2026-03
Authors
Castellini, Lucas
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Quesada, Lucía
Journal Title
Journal ISSN
Volume Title
Publisher
Universidad de San Andrés. Departamento de Economía
Abstract
This thesis studies whether a targeted demand-side subsidy could potentially destabilize pricefixing cartels. I analyze a repeated-game framework in which homogeneous firms collude by setting a price, and the Government introduces a subsidy reimbursing consumers for purchases from a single cartel member, financed with taxes. I show that, under restrictive assumptions, the subsidy raises the minimum discount factor required to sustain collusion relative to the nosubsidy benchmark, by increasing the subsidized firm's benefits from deviation. In a lineardemand model without production costs and no public-funding inefficiencies, the subsidy can induce cartel breakdown while being welfare-enhancing in the long run by achieving Bertrand competition. I then extend the analysis to account for costly public funds and positive production costs. These extensions restrict the range of discount factors under which the subsidy is socially profitable and effective. The results highlight a potential channel that may influence cartel stability, conditional on restrictive economic assumptions.
Description
Fil: Castellini, Lucas. Universidad de San Andrés. Departamento de Economía; Argentina.