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Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices

  • Joseph E. Harrington
  • Andrzej Skrzypacz

Motivated by recent cartel practices, a stable collusive agreement is characterized when firms' prices and quantities are private information. Conditions are derived whereby an equilibrium exists in which firms truthfully report their sales and then make transfers within the cartel based on these reports. The properties of this equilibrium fit well with the cartel agreements in a number of markets including citric acid, lysine, and vitamins. (JEL D43, D82, K21, L12, L61, L65)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.6.2425
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 6 (October)
Pages: 2425-49

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:6:p:2425-49
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  1. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. William Fuchs, 2005. "Contracting with Repeated Moral Hazard and Private Evaluations," Discussion Papers 04-012, Stanford Institute for Economic Policy Research.
  3. Dilip Abreu & Paul Milgrom & David Pearce, 1997. "Information and timing in repeated partnerships," Levine's Working Paper Archive 636, David K. Levine.
  4. Zheng, Bingyong, 2008. "Approximate efficiency in repeated games with correlated private signals," Games and Economic Behavior, Elsevier, vol. 63(1), pages 406-416, May.
  5. Ichiro Obara, 2007. "Folk Theorem with Communication," Levine's Bibliography 784828000000000351, UCLA Department of Economics.
  6. Johannes Hörner & Wojciech Olszewski, 2006. "The Folk Theorem for Games with Private Almost-Perfect Monitoring," Econometrica, Econometric Society, vol. 74(6), pages 1499-1544, November.
  7. Aoyagi, Masaki, 2002. "Collusion in Dynamic Bertrand Oligopoly with Correlated Private Signals and Communication," Journal of Economic Theory, Elsevier, vol. 102(1), pages 229-248, January.
  8. Michihiro Kandori, 2001. "Introduction to Repeated Games with Private Monitoring," CIRJE F-Series CIRJE-F-114, CIRJE, Faculty of Economics, University of Tokyo.
  9. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
  10. Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
  12. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, March.
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