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Endogenous Monitoring in a Partnership Game

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  • Anna Sanktjohanser

Abstract

I consider a repeated game in which, due to imperfect monitoring, no collusion can be sustained. I add a self-interested monitor who commits to obtain private signals of firms' actions and sends a public message. The monitor makes an offer specifying the precision of the signals obtained and the amount to be paid in return. First, with a low monitoring cost, collusive equilibria exist. Second, collusive equilibria are monitor-preferred. Third, in monitor-preferred equilibria, firms' payoffs are decreasing in the discount factor. My model helps explain cartel agreements between self-interested parties and firms in legal industries in the United States and Europe.

Suggested Citation

  • Anna Sanktjohanser, 2020. "Endogenous Monitoring in a Partnership Game," American Economic Review, American Economic Association, vol. 110(3), pages 776-796, March.
    • Handle: RePEc:aea:aecrev:v:110:y:2020:i:3:p:776-96
    DOI: 10.1257/aer.20161491
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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