Marginal costs and collusive sustainability

In an oligopoly supergame, firms' actions in prices and quantities are subj ect to non-negativity constraints. These constraints can obstruct the pract icability of some of the tacitly collusive subgame perfect equilibria, such as single-period optimal punishment which relies indispensably upon firms' ability to charge prices strictly below marginal costs, i.e. temporarily l oss making pricing. Thereby under the presence of positive price constraint s, marginal costs can serve as a 'fudge' to materialise such penal pricing. In this paper we briefly shed light on the effects of profit-cost ratios ( or mark-ups) on the sustainability of tacit collusion. (C) 2001 Elsevier Sc ience B.V. All rights reserved.