Optimal Collusion under Cost Asymmetry
AbstractCost asymmetry is generally thought to hinder collusion because a more efficient firm hasboth less to gain from collusion and less to fear from retaliation. Our paper reexamines thisconventional wisdom and characterizes optimal collusion without any prior restriction on theclass of strategies. We first stress that firms can ”collude” on retaliation schemes that maximallypunish even the most efficient firm. This implies that whenever collusion is sustainable undercost symmetry, some collusion is also sustainable under cost asymmetry; efficient collusion,however, remains more difficult to sustain when costs are asymmetric. Finally, we show that, inthe presence of side payments, cost asymmetry generally facilitates collusion.
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Bibliographic InfoPaper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2005-36.
Date of creation: 2005
Date of revision:
Other versions of this item:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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