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Collusion By Asymmetricaly Informed Firms

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  • KIHLSTROM, R.
  • VIVES, X.

Abstract

We analyze the implementation problem faced by firms when trying to collude in the face of asymmetric information about costs. Assuming that transfer payments are possible, we examine the incentive compatibility and individual rationality constraints that must be satisfied by any cartel agreement. Two scenarios are considered. Firms may or may not withdraw from the agreement after each firm's costs become known. If no withdrawal is possible, we find that the monopoly rule is implementable when weak types of individual rationality constraints are required. This contrasts with some results in the literature. If withdrawal is possible, we find a potential conflict between different forms of individual rationality constraints, in particular, between interim and ex post constraints. This conflict disappears in industries with a large number of firms. Copyright 1992 by MIT Press.

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Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 125-89.

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Length: 27 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:aub:autbar:125-89

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Keywords: enterprises ; information ; monopolies;

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Cited by:
  1. Miklos-Thal, Jeanine, 2008. "Optimal Collusion under Cost Asymmetry," MPRA Paper 11044, University Library of Munich, Germany.
  2. Gea Myoung Lee, 2008. "Optimal Collusion with Internal Contracting," Working Papers 08-2008, Singapore Management University, School of Economics.
  3. Peter Cramton & Thomas R. Palfrey, 1991. "Cartel Enforcement with Uncertainty About Costs," Papers of Peter Cramton 90ier, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  4. Susan Athey & Kyle Bagwell & Chris Sanchirico, 1998. "Collusion and Price Rigidity," Working papers 98-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Mark Gradstein, 1994. "Implementation of social optimum in oligopoly," Review of Economic Design, Springer, vol. 1(1), pages 319-326, December.
  6. Rey, Patrick, 2002. "Towards a Theory of Competition Policy," IDEI Working Papers 121, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Wang, Gyu Ho, 2000. "Regulating an oligopoly with unknown costs," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 813-825, July.
  8. Pouyet, J. & Verouden, V.C.H.M., 2000. "Cartel Formation under Incomplete Information: on the Requirements of Collusion-Proofness," Discussion Paper 2000-01, Tilburg University, Center for Economic Research.
  9. Joao Correia-da-Silva, 2013. "Impossibility of market division with two-sided private information about production costs," FEP Working Papers 490, Universidade do Porto, Faculdade de Economia do Porto.
  10. Gea M. Lee, 2004. "Collusion with Internal Contracting," Econometric Society 2004 Far Eastern Meetings 693, Econometric Society.
  11. João Correia-da-Silva & Joana Pinho, 2011. "Costly horizontal differentiation," Portuguese Economic Journal, Springer, vol. 10(3), pages 165-188, December.
  12. Orbay, Benan Zeki & Orbay, Hakan, 2003. "Talmudic division as a cartel rule," Journal of Economics and Business, Elsevier, vol. 55(2), pages 167-175.
  13. Laffont, Jean Jacques, 1997. "Collusion et information asymétrique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 73(4), pages 595-609, décembre.
  14. de Roos, Nicolas, 2006. "Examining models of collusion: The market for lysine," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1083-1107, November.

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