A theoretical study on yardstick competition and franchise bidding based on a dynamic model

We focus on collusion among firms, which is one of the differences between dynamic and static models. The results of the new model reveal that the Shleifer-style yardstick competition, which can effectively function under the static model, does not effectively function under the dynamic model. On the other hand, franchise bidding may effectively function under certain conditions. Thus, we demonstrate that franchise bidding is superior to yardstick competition.