Collusion, price dispersion, and fringe competition

We study the optimal behaviour of a cartel faced with fringe competition and imperfectly attentive consumers. Intertemporal price dispersion obfuscates consumer comparison which aids through two channels: it reduces effectiveness free riding by fringe; relaxes cartel’s internal incentive constraints. Our theory explains survival price-setting in homogeneous product market, provides collusive rationale for sales Edgeworth cycles, characterises manipulation its rival double cut-off rule.