Abstract
We provide an infinitely repeated game in which two firms compete to attract consumers, who may incur an additional cost when purchasing from the more distant firm. Firms set discriminatory prices for closer and farther consumers and may cooperate through a market sharing rule or by poaching in collusion. We show that poaching in collusion maximizes joint profits whenever it is viable – i.e., the additional cost is sufficiently low – so that each firm profitably serves both sides of the market. We also characterize under which conditions a market sharing rule can be even less profitable than fair competition on the entire market. Finally, we demonstrate that poaching in collusion is easier to sustain in repeated interaction, even under harsh punishment codes. These results challenge the conventional view of no-poaching agreements and market-sharing rules as always being the most natural and profitable collusive strategies.