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Cartel Enforcement with Uncertainty about Costs

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Author Info
Cramton, Peter C
Palfrey, Thomas R

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Abstract

What cartel agreements are possible when firms have private information about production costs? For private cost uncertainty, the authors characterize the set of cartel agreements that can be supported, recognizing incentive and participation constraints. If defection results in either Cournot or Bertrand competition, the incentive problem in large cartels is severe enough to prevent the cartel from achieving the monopoly outcome. However, if the cartel agreement requires less than unanimous ratification by the member firms, then the incentive problem can be overcome in large cartels. With common cost uncertainty, perfect collusion is possible in large cartels, regardless of the ratification rule. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 31 (1990)
Issue (Month): 1 (February)
Pages: 17-47
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Handle: RePEc:ier:iecrev:v:31:y:1990:i:1:p:17-47

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  5. Kihlstrom, Richard & Vives, Xavier, 1992. "Collusion by Asymmetrically Informed Firms," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(2), pages 371-96, Summer.
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  6. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November. [Downloadable!] (restricted)
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  11. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
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  12. Shapiro, Carl, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Blackwell Publishing, vol. 53(3), pages 433-46, July. [Downloadable!] (restricted)
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    • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  17. Palfrey, Thomas R, 1985. "Uncertainty Resolution, Private Information Aggregation, and the Cournot Competitive Limit," Review of Economic Studies, Blackwell Publishing, vol. 52(1), pages 69-83, January. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ngo Van Long & Horst Raff & Frank Stähler, 2009. "Innovation and Trade with Heterogeneous Firms," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  2. Nicolas Gruyer, 2008. "Optimal Auctions when a seller is bound to sell to collusive bidders (new version of "using lotteries ...")," Economics Working Papers 06, LEEA (air transport economics laboratory), ENAC (french national civil aviation school). [Downloadable!]
  3. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics. [Downloadable!]
    Other versions:
  4. Andrea Lofaro, 1999. "When imperfect collusion is profitable," Journal of Economics, Springer, vol. 70(3), pages 235-259, October. [Downloadable!] (restricted)
  5. Nicolas Gruyer, 2005. "Using lotteries in auctions when buyers collude," Economics Working Papers 02, LEEA (air transport economics laboratory), ENAC (french national civil aviation school). [Downloadable!]
  6. d ASPREMONT, Claude & CRƒMER, Jacques & GƒRARD-VARET, Louis-AndrŽ, 2003. "Correlation, independence, and Bayesian incentives," CORE Discussion Papers 2003045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  7. Miklos-Thal, Jeanine, 2008. "Optimal Collusion under Cost Asymmetry," MPRA Paper 11044, University Library of Munich, Germany. [Downloadable!]
  8. Cesar Martinelli & Richard Sicotte, 2004. "Voting in Cartels: Theory and Evidence from the Shipping Industry," Working Papers 0404, Centro de Investigacion Economica, ITAM, revised 05 Mar 2004. [Downloadable!]
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  9. Stähler, Frank & Raff, Horst & Long, Ngo Van, 2007. "The Effects of Trade Liberalization on Productivity and Welfare: The Role of Firm Heterogeneity, R&D and Market Structure," Economics Working Papers 2007,20, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  10. Gea M. Lee, 2004. "Collusion with Internal Contracting," Econometric Society 2004 Far Eastern Meetings 693, Econometric Society. [Downloadable!]
  11. Gi-Hong Kim, 2000. "The Role Of Gatt In Trade Negotiations: A Game-Theoretic Perspective," International Economic Journal, Korean International Economic Association, vol. 14(4), pages 100-123, December. [Downloadable!] (restricted)
  12. Laffont, Jean Jacques, 1997. "Collusion et information asymétrique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 73(4), pages 595-609, décembre. [Downloadable!]
  13. Pouyet, J. & Verouden, V., 2000. "Cartel formation under incomplete information : on the requirements of collusion-proofness," Discussion Paper 1, Tilburg University, Center for Economic Research. [Downloadable!]
  14. Markku Stenborg, 2004. "Forest for the Trees: Economics of Joint Dominance," European Journal of Law and Economics, Springer, vol. 18(3), pages 365-385, December. [Downloadable!] (restricted)
  15. Mark Gradstein, 1994. "Implementation of social optimum in oligopoly," Review of Economic Design, Springer, vol. 1(1), pages 319-326, December. [Downloadable!] (restricted)
  16. Dequiedt, V., 2006. "Ratification and veto constraints in mechanism design," Working Papers 200606, Grenoble Applied Economics Laboratory (GAEL). [Downloadable!]
  17. Ken Hendricks & Robert Porter & Guofu Tan, 2003. "Bidding Rings and the Winner's Curse: The Case of Federal Offshore Oil and Gas Lease Auctions," NBER Working Papers 9836, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Celik, Gorkem & Peters, Michael, 2008. "Equilibrium Rejection of a Mechanism," Micro Theory Working Papers gorkem_celik-2008-10, Microeconomics.ca Website, revised 06 Aug 2008. [Downloadable!]
  19. Peter Cramton & Thomas R. Palfrey, 1995. "Ratifiable Mechanisms: Learning from Disagreement," Papers of Peter Cramton 95geb, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998. [Downloadable!]
    Other versions:
  20. Verouden, V.C.H.M., 2001. "Essays in Antitrust Economics," Open Access publications from Tilburg University urn:nbn:nl:ui:12-86304, Tilburg University. [Downloadable!]
  21. Michel Mougeot & Florence Naegelen, 2007. "Was Chadwick right?," Review of Industrial Organization, Springer, vol. 30(2), pages 121-137, March. [Downloadable!] (restricted)
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