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CONSEQUENCES OF CORPORATE DEBT FINANCING IN PRICE AGREEMENTS' STABILITY

100%
Macas P., Serrasqueiro Z., Saraiva P.
Ekonomický časopis (Journal of Economics)
|
2005
|
vol. 53
|
issue 10
1038-1050
EN
The present article aims to show that price agreements are more unstable if their companies use debt as a financing instrument. Moreover, the higher the number of companies (that use debt) in a price agreement, the more instable the price agreement will be. Even when companies compete a la Bertrand and if debt financing is high, the duopoly of price agreement will be instable. When debt financing is present, we found there is a higher number of sub-game perfect equilibrium, in a posteriorly a la Cournot competition, then when debt financing is not present and that this (possible) existence of sub-game perfect equilibrium increases as the debt level of financing increases.
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