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SSRN Electronic Journal
Article . 2006 . Peer-reviewed
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Surcharging as a Facilitating Practice

Authors: Luke Garrod;

Surcharging as a Facilitating Practice

Abstract

This paper shows how separately itemised surcharges potentially facilitate collusion during a temporary marginal cost shock if firms commit to their duration. A duopoly model with price matching punishments shows that if firms set higher prices they only receive punishment during the shock because they expect prices to fall in the future regardless of a deviation. When it is likely that costs will fall in the future the price matching punishment is too small to increase prices, so firms maintain rigid prices. When it is unlikely that costs will fall the punishment is harsh enough to sustain marginally higher supracompetive prices. However, if firms commit to surcharges for the shock's duration they are able to set even higher prices, because surcharges effectively commit firms to a price decrease and so threaten a harsher punishment after the cost shock has ended.

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
2
Average
Average
Average
bronze