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Tacit Collusion, Cost Asymmetries, and Mergers

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  • Helder Vasconcelos

    () (Universita` Bocconi)

Abstract

This article contributes to the analysis of tacit collusion in quantity-setting supergames involving cost-asymmetric firms. Asymmetry is dealt with by assuming that firms have a different share of a specific asset that affects marginal costs. The model extends optimal punishment schemes in the style of Abreu (1986, 1988) and provides conditions for industrywide collusion to be enforced. From the analysis of the impact of asset transfers on the sustainability of tacit collusion, merger policy implications can be drawn. In particular, I show that if the merger induces an increase in the inequality of asset holdings, this will hinder collusion.

Suggested Citation

  • Helder Vasconcelos, 2005. "Tacit Collusion, Cost Asymmetries, and Mergers," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 39-62, Spring.
  • Handle: RePEc:rje:randje:v:36:y:2005:1:p:39-62
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    More about this item

    Keywords

    Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance Market Structure; Firm Strategy; and Market Performance: Monopoly; Monopolization Strategies (cartels; collusion) Market Structure; Firm Strategy; and Market Performance: Oligopoly and Other Imperfect Markets; monopolistic competition; contestable markets Collusion; Firm; Firms; Merger; Shares;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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