SUSTAINABLE COLLUSION IN OLIGOPOLY WITH FREE ENTRY

We investigate the stability of collusion in a market where firms cannot prevent entry. In a symmetric, homogeneous oligopoly there are collusive long-run equilibria under which the colluders obtain positive economic rents while they do not prevent entry of firms up to a maximum equal to the largest number of firms sustainable at a single shot equilibrium. The collusion is not generous to new entrants; their profits are a little better than those associated with the discounted single shot equilibrium. Eventually entrants obtain profits equal to the incumbent firms. We extend the results to asymmetric, differentiated oligopolies.