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Cartel Enforcement with Uncertainty About Costs

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Author Info
Peter Cramton () (Economics Department, University of Maryland)
Thomas R. Palfrey

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Abstract

What cartel agreements are possible when firms have private information about production costs? For private cost uncertainty we characterize the set of cartel agreements that can be supported, recognizing incentive and participation constraints. If defection results in either Cournot or Bertrand competition, the incentive problem in large cartels is severe enough to prevent the cartel from achieving the monopoly outcome. However, if the cartel agreement requires less than unanimous ratification by the member firms, then the incentive problem can be overcome in large cartels. With common cost uncertainty, perfect collusion is possible in large cartels, regardless of the ratification rule.

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File URL: http://www.cramton.umd.edu/papers1990-1994/90ier-cartel-enforcement.pdf
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Publisher Info
Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 90ier.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 31 pages
Date of creation: 1991
Date of revision: 09 Jun 1998
Publication status: Published in International Economic Review, 31:1, February 1991, pages 17-47.
Handle: RePEc:pcc:pccumd:90ier

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Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
Phone: (202) 318-0520
Fax: (202) 318-0520
Web page: http://www.cramton.umd.edu

For technical questions regarding this item, or to correct its listing, contact: (Peter Cramton).

Related research
Keywords: Private Information Collusion Cartel Agreements

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
  9. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
    Other versions:
  10. Shapiro, Carl, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Blackwell Publishing, vol. 53(3), pages 433-46, July. [Downloadable!] (restricted)
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    Other versions:
    • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  15. Palfrey, Thomas R, 1985. "Uncertainty Resolution, Private Information Aggregation, and the Cournot Competitive Limit," Review of Economic Studies, Blackwell Publishing, vol. 52(1), pages 69-83, January. [Downloadable!] (restricted)
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    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Guofu Tan & Okan Yilankaya, 2005. "Ratifiability of Efficient Collusive Mechanisms in Second-Price Auctions with Participation Costs," IEPR Working Papers 05.15, Institute of Economic Policy Research (IEPR). [Downloadable!]
    Other versions:
  3. Palfrey, Thomas R. & Srivastava, Sanjay., 1989. "Efficient Trading Mechanisms with Pre-Play Communication," Working Papers 693, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  4. César Martinelli & Rich Sicotte, 2004. "Voting in Cartels: Theory and Evidence from the Shipping Industry," Levine's Bibliography 122247000000000598, UCLA Department of Economics. [Downloadable!]
    Other versions:
  5. Long, Ngo Van & Raff, Horst & Stähler, Frank, 2007. "The Effects of Trade Liberalization on Productivity and Welfare: The Role of Firm Heterogeneity, R&D and Market Structure," Economics working papers 2007,20, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  6. Patrick Bajari & Garrett Summers, . "Detecting Collusion in Procurement Auctions: A Selective Survey of Recent Research," Working Papers 01014, Stanford University, Department of Economics. [Downloadable!]
  7. Gi-Hong Kim, 2000. "The Role Of Gatt In Trade Negotiations: A Game-Theoretic Perspective," International Economic Journal, Korean International Economic Association, vol. 14(4), pages 100-123, December. [Downloadable!] (restricted)
  8. Ledyard, John & Palfrey, Thomas, 2003. "A general characterization of interim efficient mechanisms for independent linear environments," Working Papers 1186, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  9. Celik, Gorkem & Peters, Michael, 2008. "Equilibrium Rejection of a Mechanism," Micro Theory Working Papers gorkem_celik-2008-10, Microeconomics.ca Website, revised 06 Aug 2008. [Downloadable!]
  10. Nicolas Gruyer, 2005. "Using lotteries in auctions when buyers collude," Economics Working Papers 02, LEEA (air transport economics laboratory), ENAC (french national civil aviation school). [Downloadable!]
  11. Gea M. Lee, 2004. "Collusion with Internal Contracting," Econometric Society 2004 Far Eastern Meetings 693, Econometric Society. [Downloadable!]
  12. Ngo Van Long & Horst Raff & Frank Stähler, 2008. "Innovation and Trade with Heterogeneous Firms," Kiel Working Papers 1430, Kiel Institute for the World Economy. [Downloadable!]
  13. REY, Patrick, 2002. "Towards a Theory of Competition Policy," IDEI Working Papers 121, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  14. Pouyet, J. & Verouden, V., 2000. "Cartel formation under incomplete information : on the requirements of collusion-proofness," Discussion Paper 1, Tilburg University, Center for Economic Research. [Downloadable!]
  15. Dequiedt, V., 2006. "Ratification and veto constraints in mechanism design," Working Papers 200606, Grenoble Applied Economics Laboratory (GAEL). [Downloadable!]
  16. Ken Hendricks & Robert Porter & Guofu Tan, 2003. "Bidding Rings and the Winner's Curse: The Case of Federal Offshore Oil and Gas Lease Auctions," NBER Working Papers 9836, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Peter Cramton & Thomas R. Palfrey, 1995. "Ratifiable Mechanisms: Learning from Disagreement," Papers of Peter Cramton 95geb, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998. [Downloadable!]
    Other versions:
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