2134/27366
Luke Garrod
Luke
Garrod
Matthew Olczak
Matthew
Olczak
Explicit vs tacit collusion: The effects of firm numbers and asymmetries
Loughborough University
2017
Cartels
Tacit collusion
Imperfect monitoring
Capacity constraints
Economics not elsewhere classified
2017-11-10 12:16:48
Journal contribution
https://repository.lboro.ac.uk/articles/journal_contribution/Explicit_vs_tacit_collusion_The_effects_of_firm_numbers_and_asymmetries/9491501
In an infinitely repeated game where firms with (possibly asymmetric) capacity constraints can make secret price cuts, we analyse the incentives for explicit collusion when firms can alternatively collude tacitly. Tacit collusion can involve price wars on the equilibrium path. Explicit collusion involves firms secretly sharing their private information to avoid such price wars, but this is illegal and runs the risk of sanctions. We find that, in contrast to the conventional wisdom but consistent with some empirical evidence, illegal cartels are least likely to arise in markets with a few symmetric firms, because tacit collusion is relatively more appealing in such markets. We discuss the implications for anti-cartel enforcement policy.