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Collusion, firm numbers and asymmetries revisited [Lisbon]

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conference contribution
posted on 06.06.2016 by Luke Garrod, Matthew Olczak
In an infinitely repeated game where market demand is uncertain and where firms with (possibly asymmetric) capacity constraints must monitor the agreement through their privately observed sales and prices, we analyse the firms’ incentives to form a cartel when they could alternatively collude tacitly. In this private monitoring setting, tacit collusion involves price wars on the equilibrium path if a firm cannot infer from its low sales whether the realisation of market demand was unluckily low or whether at least one rival has undercut the collusive price. In contrast, explicit collusion involves firms secretly forming an illegal cartel to share their private information to avoid such price wars, but this runs the risk of sanctions. We show, in contrast to the conventional wisdom and consistent with the empirical evidence, that the incentives to form an illegal cartel can be smallest in markets with a few symmetric firms, because tacit collusion is most successful in such market.

History

School

  • Business and Economics

Department

  • Economics

Published in

European Association of Research in Industrial Economics

Citation

GARROD, L. and OLCZAK, M., 2016. Collusion, firm numbers and asymmetries revisited. Presented at the 43rd Annual Conference of the European Association of Research in Industrial Economics, Lisbon, 26-28th Aug.

Publisher

EARIE

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

13/05/2016

Publication date

2016

Notes

This is a conference paper.

Language

en

Location

Lisbon

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