Collusion in two models of spatial competition with quantity-setting firms

Abstract

We use the linear city model and the circular city model to investigate the relationship between collusion sustainability and firms’ distance, and between collusion sustainability and transportation costs when firms can sell different quantities at each location. We find that when transportation costs are low, collusion sustainability monotonically increases with firms’ distance, while when transportation costs are high, the relationship is non-monotonic. Higher transportation costs increase collusion sustainability. Finally, in the circular city model, welfare is higher under collusion than under competition when transportation costs are high and firms are distant enough.