Collusion with Correlated Demand

Under the correlated demand model, we examine the effects of the correlated coefficient and the volatility of the stochastic demand on the collusion behavior in international trade. With the symmetric cost, the motivation for collusion can be strengthened under correlated demand. In terms of the cost asymmetries, it is shown that the increase of cost difference make it more difficult to sustain collusion in a cartel as the inefficient has greater incentive to defect than the efficient. However, the increase of the correlated coefficient and the risk in stochastic demand could weaken the effects of cost asymmetries on the collusion condition in the international industry.