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We study the implication of credit constraints for the sustainability of product market collusion in a bank financed oligopoly when firms face an imperfect credit market. We consider two situations without or with credit rationing i.e. with a binding credit limit. When there is no credit rationing moderately higher cost of external finance may affect the degree of collusion, but a substantial increase keeps it unaffected. Permanent adverse demand shock in this set up does not affect the possibility of collusion, but may aggravate the finance constraint and eventually lead to collusion. We consider both Cournot and Bertrand cases and the results are qualitatively the same.


8th January 2015
4:00 pm
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IGIDR, Seanza Conference Hall
Mumbai, Maharashtra India


Prof. Sugata Marjit, Former Director, Centre for Studies in Social Sciences