Abstract WP n.º 33:
The impact of demand growth on the collusion possibilities is investigated in a Cournot supergame where market growth may trigger future entry and the collusive agreement is enforced by the most profitable ‘grim trigger strategies’ available. It is shown that even in situations where perfect collusion can be sustained after entry,  coping with a potential entrant in a market which is growing over time may completely undermine any pre-entry collusive plans of the incumbent firms. This is because, before entry, a deviation and the following punishment phase may become more attractive thanks to their additional effect in terms of delaying entry (Keywords: Collusion; Demand Growth; and Entry).

Text:
After the Introduction, Section 2 describes the basic model. Section 3 briefly discusses the case in which entry costs are prohibitive and, therefore, there is no entry triggered by market growth. In Section 4, we analyze firms’ optimal behavior ex-post entry and characterize the optimal entry date (along the collusive path) when entry costs are not prohibitive. Section 5 will focus on how market growth affects the level of collusion that can be sustained before entry by the incumbent …rms. Section 6 studies two possible extensions of the basic model. In particular, it discusses the case in which there are two potential entrants and analyzes whether partial collusion between the two incumbent firms is feasible in this setting. Finally, Section 7 offers some concluding comments.