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Prof. Patrick Rey

Toulouse School of Economics, France

Authors: Patrick Rey and Jean Tirole

Abstract: The assessment of public policies regarding oligopolies requires forming an opinion on whether such policies are likely to hinder or facilitate tacit collusion. Yet, products rarely satisfy the axiom of perfect substitutability that underlies our rich body of knowledge on the topic. We study tacit coordination for a class of demand functions allowing for the full range between perfect substitutes and perfect complements. In our nested demand model, the individual users must select a) which products to purchase within the technological class and b) whether they adopt the technology at all.
We first derive general results about the sustainability of tacit coordination. We then study the desirability of joint marketing alliances, such as patent pools. We show that a combination of two information-free regulatory requirements, mandated unbundling by the joint marketing entity and unfettered independent marketing by the firms, makes joint-marketing alliances always socially desirable, whether tacit coordination is feasible or not. We also study incentives for investment.

Full Text:  “Cooperation vs. Collusion: How Essentiality Shapes Co-opetition”