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Optimal collusion under cost asymmetry

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  • Jeanine Miklós-Thal

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Abstract

Cost asymmetry is generally thought to hinder collusion because a more efficient firm has both more to gain from a deviation and less to fear from retaliation than less efficient firms. Our paper reexamines this conventional wisdom and characterizes optimal collusion without any prior restriction on the class of strategies. We first stress that firms can credibly agree on retaliation schemes that maximally punish even the most efficient firm. This implies that whenever collusion is sustainable under cost symmetry, some collusion is also sustainable under cost asymmetry; efficient collusion, however, remains more di¢ cult to sustain when costs are asymmetric. Finally, we show that, in the presence of side payments, cost asymmetry generally facilitates collusion.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 46 (2011)
Issue (Month): 1 (January)
Pages: 99-125

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Handle: RePEc:spr:joecth:v:46:y:2011:i:1:p:99-125

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Related research

Keywords: Horizontal collusion; Cost asymmetry; Optimal punishments; Side payments; L11; L41; C72;

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References

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Citations

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Cited by:
  1. Stefano Colombo, 2009. "Pricing Policy and Partial Collusion," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0090, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  2. Domenico Buccella, 2010. "FDI, International Trade and Union Collusion," FIW Working Paper series 050, FIW.
  3. Jeanine Thal, 2005. "Optimal Collusion under Cost Asymmetry," Working Papers 2005-36, Centre de Recherche en Economie et Statistique.
  4. Akinbosoye, Osayi & Bond, Eric W. & Syropoulos, Constantinos, 2012. "On the stability of multimarket collusion in price-setting supergames," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 253-264.
  5. John Asker & Heski Bar-Isaac, 2011. "Exclusionary Minimum Resale Price Maintenance," Working Papers 11-22, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Miklós-Thal, Jeanine, 2008. "Delivered pricing and the impact of spatial differentiation on cartel stability," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1365-1380, November.
  7. Billette de Villemeur, Etienne & Flochel, Laurent & Versaevel, Bruno, 2012. "Optimal collusion with limited liability," MPRA Paper 38481, University Library of Munich, Germany.
  8. Joseph E. Harrington, Jr & Roberto Hernan-Gonzalez & Praveen Kujal, 2013. "The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings," Working Papers 13-30, Chapman University, Economic Science Institute.
  9. António Brandão & Joana Pinho & Hélder Vasconcelos, 2013. "Asymmetric collusion with growing demand," FEP Working Papers 510, Universidade do Porto, Faculdade de Economia do Porto.
  10. Goldlücke, Susanne & Kranz, Sebastian, 2013. "Renegotiation-proof relational contracts," Games and Economic Behavior, Elsevier, vol. 80(C), pages 157-178.
  11. Aditya Bhattacharjea & Uday Bhanu Sinha, 2012. "Multi-market Collusion with Territorial Allocation," Working papers 217, Centre for Development Economics, Delhi School of Economics.
  12. Argenton, Cédric & Müller, Wieland, 2012. "Collusion in experimental Bertrand duopolies with convex costs: The role of cost asymmetry," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 508-517.
  13. Kranz, Sebastian & Ohlendorf, Susanne, 2009. "Renegotiation-Proof Relational Contracts with Side Payments," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 259, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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