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This article provides a framework for the analysis of cartel formation. It models the strategic interaction among firms who invest into production capacity, sell a near-homogeneous good, and are subject to unexpected demand shocks with persistence. The firms either compete or collude in prices....
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ordering these consolidation strategies by multiplier size or their welfare consequences leads to very different rankings. With …
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larger multiplier when it issues short term debt. We find that the latter effect dominates and that the optimal policy for …
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