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Collusion Under Asymmetric Information and Institutional Incompleteness

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Author Info
Cecile Aubert (University of Toulouse 1)
Jerome Pouyet (GREMAQ)

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Abstract

We study collusion between a regulated firm and an unregulated competitor selling differentiated goods in a common market. There exists an institutional incompleteness that prevents the regulator from contracting with the competitor. Due to this, the effectiveness of yardstick mechanisms can be impaired by some behavior of the unregulated firm intended at concealing information from the regulator. With collusion under asymmetric information (modeled as in Laffont and Martimort), we show that the unique regulator is not able to benefit from asymmetries of information within the coalition if she offers contracts that induce truthful revelation of her firm's cost. Collusion entails large departures from the full information allocation (bunching may appear) casting some doubt on the optimality of collusion-proof mechanisms. When firms are regulated each by a different body, the lack of coordination between regulators to fight collusion still entails costs.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0806.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0806

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  1. Bernard Caillaud & Pierre-Philipe Combes & Bruno Jullien, 1997. "Common Market with Regulated Firms," Annales d'Economie et de Statistique, ADRES, issue 47, pages 06, Juillet-S. [Downloadable!]
  2. Esther Gal-Or, 1991. "A Common Agency with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 274-286, Summer. [Downloadable!] (restricted)
  3. Maggi, Giovanni, 1999. "Strategic Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 571-94, August.
  4. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February. [Downloadable!] (restricted)
  5. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September. [Downloadable!] (restricted)
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  6. Laffont, Jean-Jacques & Martimort, David, 1998. "Mechanism Design with Collusion and Correlation," IDEI Working Papers 81, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  7. 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)
  8. Jean-Jacques Laffont & David Martimort, 1997. "Collusion under Asymmetric Information," Econometrica, Econometric Society, vol. 65(4), pages 875-912, July.
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  9. Laffont, Jean-Jacques & Martimort, David, 1999. " Collusion-Proof Samuelson Conditions for Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(4), pages 399-438. [Downloadable!] (restricted)
  10. Brainard, S Lael & Martimort, David, 1996. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts," Review of Economic Studies, Blackwell Publishing, vol. 63(1), pages 81-105, January. [Downloadable!] (restricted)
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