Process of dominant-cartel formation

This paper considers the process of cartel formation in the industries characterized by collusive price-leadership. In contrast to the preceding literature, the focus of the analysis is shifted from the problem of cartel stability towards the process of forming a stable cartel. Two models of the dominant-cartel-formation process are proposed: a sequential-, and simultaneous-moves game of firms. The sequential-moves game shows a possibility of creating a stable cartel when the firms have commitment power to refuse the cartel membership. However, when the firms have no commitment power to stay in the competitive fringe, the simultaneous-moves game suggests that it may be impossible to form a stable dominant cartel. (C) 1999 Elsevier Science B.V. All rights reserved.