IDEAS home Printed from https://ideas.repec.org/a/oup/restud/v79y2012i2p778-811.html

Robust Collusion with Private Information

Author

Listed:
  • David A. Miller

Abstract

The game-theoretic literature on collusion has been hard pressed to explain why a cartel should engage in price wars, without resorting to either impatience, symmetry restrictions, inability to communicate, or failure to optimize. This paper introduces a new explanation that relies on none of these assumptions: if the cartel's member firms have private information about their costs, price wars can be optimal in the face of complexity. Specifically, equilibria that are robust to pay-off irrelevant disruptions of the information environment generically cannot attain or approximate efficiency. An optimal robust equilibrium must allocate market shares inefficiently and may call for price wars under certain conditions. For a two-firm cartel, cost interdependence is a sufficient condition for price wars to arise in an optimal robust equilibrium. That optimal equilibria are inefficient generically applies not only to collusion games but also to the entire separable pay-off environment--a class that includes most typical economic models. Copyright 2012, Oxford University Press.

Suggested Citation

  • David A. Miller, 2012. "Robust Collusion with Private Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 778-811.
    • Handle: RePEc:oup:restud:v:79:y:2012:i:2:p:778-811
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/restud/rdr035
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sugaya, Takuo & Yamamoto, Yuichi, 2020. "Common learning and cooperation in repeated games," Theoretical Economics, Econometric Society, vol. 15(3), July.
    2. de Clippel, Geoffroy & Eliaz, Kfir & Fershtman, Daniel & Rozen, Kareen, 2021. "On selecting the right agent," Theoretical Economics, Econometric Society, vol. 16(2), May.
    3. Moritz Drexl & Andreas Kleiner, 2018. "Why Voting? A Welfare Analysis," American Economic Journal: Microeconomics, American Economic Association, vol. 10(3), pages 253-271, August.
    4. Chan, Jimmy & Zhang, Wenzhang, 2015. "Collusion enforcement with private information and private monitoring," Journal of Economic Theory, Elsevier, vol. 157(C), pages 188-211.
    5. Andreas Blume & April Mitchell Franco & Paul Heidhues, 2021. "Dynamic coordination via organizational routines," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(4), pages 1001-1047, November.
    6. Yuliy Sannikov & Andrzej Skrzypacz, 2007. "Impossibility of Collusion under Imperfect Monitoring with Flexible Production," American Economic Review, American Economic Association, vol. 97(5), pages 1794-1823, December.
    7. Martin, Alberto & Vergote, Wouter, 2008. "On the role of retaliation in trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 61-77, September.
    8. Palsule-Desai, Omkar D., 2021. "Multi-product supply networks: Implications of intermediaries," European Journal of Operational Research, Elsevier, vol. 292(3), pages 909-929.
    9. Takuo Sugaya & Yuichi Yamamoto, 2019. "Common Learning and Cooperation in Repeated Games," PIER Working Paper Archive 19-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    10. Martin, Alberto & Vergote, Wouter, 2004. "Antidumping: Welfare Enhancing Retaliation?," MPRA Paper 5416, University Library of Munich, Germany.
    11. Rohit Lamba, 2022. "Efficiency with(out) intermediation in repeated bilateral trade," Papers 2202.04201, arXiv.org.
    12. Yuichi Yamamoto, 2012. "Individual Learning and Cooperation in Noisy Repeated Games," PIER Working Paper Archive 12-044, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    13. Shao, Ran & Zhou, Lin, 2016. "Optimal allocation of an indivisible good," Games and Economic Behavior, Elsevier, vol. 100(C), pages 95-112.
    14. Andrzej Skrzypacz & Juuso Toikka, 2015. "Mechanisms for Repeated Trade," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 252-293, November.
    15. Vinicius Carrasco & Gustavo Manso, 2006. "Syndication and Robust Collusion in Financial Markets," Textos para discussão 522, Department of Economics PUC-Rio (Brazil).
    16. Drexl, Moritz & Kleiner, Andreas, 2015. "Optimal private good allocation: The case for a balanced budget," Games and Economic Behavior, Elsevier, vol. 94(C), pages 169-181.
    17. Joao Correia-da-Silva, 2013. "Impossibility of market division with two-sided private information about production costs," FEP Working Papers 490, Universidade do Porto, Faculdade de Economia do Porto.
    18. Susan Athey & Ilya Segal, 2013. "An Efficient Dynamic Mechanism," Econometrica, Econometric Society, vol. 81(6), pages 2463-2485, November.
    19. Lin William Cong & Zhiguo He, 2019. "Blockchain Disruption and Smart Contracts," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1754-1797.
    20. Yuichi Yamamoto, 2013. "Individual Learning and Cooperation in Noisy Repeated Games," PIER Working Paper Archive 13-038, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    21. Leo, Greg, 2017. "Taking turns," Games and Economic Behavior, Elsevier, vol. 102(C), pages 525-547.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:79:y:2012:i:2:p:778-811. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/restud .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.