Collusion and heterogeneity of firms

We examine the impact of heterogeneous discounting on collusion in dynamic Bertrand competition. We show exactly when collusion can be sustained and how collusion would be organized efficiently with heterogeneous discounting. First, we show that collusion is possible if and only if the average discount factor exceeds a certain threshold, with or without capacity constraints. Next, we identify a dynamic pattern of market share that characterizes efficient collusion and obtain the unique long‐run prediction despite the presence of multiple equilibria. In the long run, the most patient firm and the most impatient firm tend to dominate the market.