TITLE:
Firms’ Coalitions, Demand Systems and Asymmetric Prices
AUTHORS:
Armando Jose Garcia Pires, Frode Skjeret
KEYWORDS:
Firms’ Coalitions, Partial Cartels, Mergers and Acquisitions, Joint Ventures, Demand Systems, Asymmetric Prices
JOURNAL NAME:
Theoretical Economics Letters,
Vol.15 No.3,
June
25,
2025
ABSTRACT: We extend Deneckere and Davidson’s model on firms’ incentives to form coalitions to predict which firms are more likely to enter a coalition. In Deneckere and Davidson, all firms have the same incentives to enter a coalition because they are all symmetric and therefore choose symmetric prices. We modify their demand specification to include different cross-price elasticities. With this, we can generate market equilibria where firms have different prices, and therefore different incentives to enter a coalition. Our modified model can inform the construction and estimation of empirical models of coalitions and price formation.