Price Collusion in an Infinitely Repeated Hotelling Duopoly
by Jonathan Powers (Aug. 1998)
This paper explores the effect product differentiation has on the ability of firms to collude in setting prices. It is often thought that product differentiation can be an impediment to collusion. However, the results in this paper suggest that product differentiation can enhance the ability of firms to collude. Specifically, in an infinitely repeated Hotelling duopoly, trigger strategies which result in the collusive outcome are subgame perfect equilibria for a larger range of discount factors the more differentiated the products are.