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Collusion under monitoring of sales

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  • Joseph E. Harrington Jr.
  • Andrzej Skrzypacz

Abstract

Collusion under imperfect monitoring is explored when firms' prices are private information and their quantities are public information; an information structure consistent with several recent price-fixing cartels such as those in lysine and vitamins. For a class of symmetric duopoly games, it is shown that symmetric equilibrium punishments cannot sustain any collusion. An asymmetric punishment is characterized which does sustain collusion and it has the firm with sales exceeding its quota compensating the firm with sales below its quota. In practice, cartels have performed such transfers through sales among the cartel members.
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Suggested Citation

  • Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, June.
  • Handle: RePEc:bla:randje:v:38:y:2007:i:2:p:314-331
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    File URL: http://hdl.handle.net/10.1111/j.1756-2171.2007.tb00070.x
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    References listed on IDEAS

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    1. Andreas Blume & Paul Heidhues, 2008. "Modeling Tacit Collusion in Auctions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 163-184, March.
    2. Joseph E. Harrington, 2005. "Optimal Cartel Pricing In The Presence Of An Antitrust Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 145-169, February.
    3. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    4. Dekel, E. & Wolinsky, A., 2000. "Rationalizable Outcomes of Large Independent Private-Value First-Price Discrete Auctions," Papers 00-13, Tel Aviv.
    5. Harrington, Joseph Jr. & Chen, Joe, 2006. "Cartel pricing dynamics with cost variability and endogenous buyer detection," International Journal of Industrial Organization, Elsevier, pages 1185-1212.
    6. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, pages 651-673.
    7. Bagwell, Kyle & Wolinsky, Asher, 2002. "Game theory and industrial organization," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 49, pages 1851-1895 Elsevier.
    8. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
    9. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    10. Harrington, Joseph Jr. & Chen, Joe, 2006. "Cartel pricing dynamics with cost variability and endogenous buyer detection," International Journal of Industrial Organization, Elsevier, pages 1185-1212.
    11. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, pages 314-331.
    12. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    13. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, pages 314-331.
    14. Cabral, Luis M B & Riordan, Michael H, 1994. "The Learning Curve, Market Dominance, and Predatory Pricing," Econometrica, Econometric Society, vol. 62(5), pages 1115-1140, September.
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