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Tacit Collusion, Cost Asymmetries, and Mergers

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Author Info
Helder Vasconcelos () (Universita` Bocconi)

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Abstract

This article contributes to the analysis of tacit collusion in quantity-setting supergames involving cost-asymmetric firms. Asymmetry is dealt with by assuming that firms have a different share of a specific asset that affects marginal costs. The model extends optimal punishment schemes in the style of Abreu (1986, 1988) and provides conditions for industrywide collusion to be enforced. From the analysis of the impact of asset transfers on the sustainability of tacit collusion, merger policy implications can be drawn. In particular, I show that if the merger induces an increase in the inequality of asset holdings, this will hinder collusion. Ordering information: This article can be ordered from https://pubs3.rand.org/cgi-bin/rje/pdf.cgi.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 36 (2005)
Issue (Month): 1 (Spring)
Pages: 39-62
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Handle: RePEc:rje:randje:v:36:y:2005:1:p:39-62

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Web page: http://www.rje.org

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Related research
Keywords: Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance Market Structure; Firm Strategy; and Market Performance: Monopoly; Monopolization Strategies (cartels; collusion) Market Structure; Firm Strategy; and Market Performance: Oligopoly and Other Imperfect Markets; monopolistic competition; contestable markets Collusion; Firm; Firms; Merger; Shares;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. Ganslandt, Mattias & Persson, Lars & Vasconcelos, Helder, 2007. "Asymmetric Collusion and Merger Policy," Working Paper Series 719, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  2. Vasconcelos, Helder, 2007. "Efficiency Gains and Structural Remedies in Merger Control," CEPR Discussion Papers 6093, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Fumagalli, Eileen & Nilssen, Tore, 2008. "Waiting to Merge," Memorandum 13/2008, Oslo University, Department of Economics. [Downloadable!]
  4. Miklos-Thal, Jeanine, 2008. "Optimal Collusion under Cost Asymmetry," MPRA Paper 11044, University Library of Munich, Germany. [Downloadable!]
  5. Ganslandt, Mattias & Persson, Lars & Vasconcelos, Helder, 2008. "Asymmetric Cartels - a Theory of Ring Leaders," CEPR Discussion Papers 6829, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Kai-Uwe Kühn, 2005. "Collusion Theory in Search of Robust Themes: A Comment on Switgard Feuerstein's Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 207-215, December. [Downloadable!] (restricted)
  7. Etienne Billette de Villemeur & Laurent Flochel & Bruno Versaevel, 2009. "Optimal Collusion with Limited Severity Constraint," Working Papers 0909, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
    Other versions:
  8. Norbäck, Pehr-Johan & Persson, Lars & Vlachos, Jonas, 2006. "Entrepreneurial Innovations, Competition and Competition Policy," Working Paper Series 670, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  9. Emilie Dargaud, 2008. "Mergers, cartels and leniency programs : the role of production capacities," Working Papers 0814, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
  10. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics. [Downloadable!]
  11. Iwan Bos & Joseph E. Harrington, Jr., 2008. "Endogenous Cartel Formation with Heterogeneous Firms," Economics Working Paper Archive 544, The Johns Hopkins University,Department of Economics, revised Nov 2008. [Downloadable!]
  12. 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)
  13. Pedro Mendi & Róbert F. Veszteg, 2009. "Sustainability of collusion: evidence from the late 19th century basque iron and steel industry," Investigaciones Economicas, Fundación SEPI, vol. 33(3), pages 385-405, September. [Downloadable!]
  14. Pedro Mendi, 2009. "Backward integration and collusion in a duopoly model with asymmetric costs," Journal of Economics, Springer, vol. 96(2), pages 95-112, March. [Downloadable!] (restricted)
  15. Fumagalli, Eileen & Vasconcelos, Helder, 2006. "Cross-Border Merger Waves," CEPR Discussion Papers 5601, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  16. Markku Stenborg, 2002. "Economics of Joint Dominance," Discussion Papers 834, The Research Institute of the Finnish Economy. [Downloadable!]
  17. Roberta Longo & Marisa Miraldo & Andrew Street, 2008. "Price regulation of pluralistic markets subject to provider collusion," Working Papers 045cherp, Centre for Health Economics, University of York. [Downloadable!]
    Other versions:
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