Welfare Enhancing Collusion In A Service Provision Model

Abstract

This paper provides a model of service provision with homogeneous goods
that allows for welfare comparisons between firms engaged in Cournot-type competition
and joint-profit maximization. An important factor in this analysis is the role of
service provision on the demand for the product. We find that collusion can be social
welfare enhancing in a static framework and show that under certain conditions both
consumers and producers can benefit from collusion; this occurs if the number of
firms in the market exceeds roughly 20.4 firms. Additionally, we present a collusive
result that we have not found elsewhere in the literature.