Excess capacity, sunk costs and collusion: A non-cooperative bargaining game: Some considerations on the European car industry

Abstract

This paper models competition among firms which operate at excess capacity as a non-cooperative bargaining game. It is shown that, provided sunk costs are sufficiently high, collusion among firms will ensue. This result has been employed to provide a non-traditional interpretation of both price and non-price competition in the European car market in recent years.