Optimal collusion under cost asymmetry
Cost asymmetry is generally thought to hinder collusion because a more efficient firm has both more to gain from a deviation and less to fear from retaliation than less efficient firms. Our paper reexamines this conventional wisdom and characterizes optimal collusion without any prior restriction on the class of strategies. We first stress that firms can credibly agree on retaliation schemes that maximally punish even the most efficient firm. This implies that whenever collusion is sustainable under cost symmetry, some collusion is also sustainable under cost asymmetry; efficient collusion, however, remains more di¢ cult to sustain when costs are asymmetric. Finally, we show that, in the presence of side payments, cost asymmetry generally facilitates collusion.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 46 (2011)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/199/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dechenaux, Emmanuel & Kovenock, Dan, 2003.
"Endogenous Rationing, Price Dispersion, and Collusion in Capacity Constrained Supergames,"
Purdue University Economics Working Papers
1164, Purdue University, Department of Economics.
- Emmanuel Dechenaux & Dan Kovenock, 2011. "Endogenous rationing, price dispersion and collusion in capacity constrained supergames," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 29-74, May.
- Lambson, Val Eugene, 1995. "Optimal penal codes in nearly symmetric Bertrand supergames with capacity constraints," Journal of Mathematical Economics, Elsevier, vol. 24(1), pages 1-22.
- Susan Athey & Kyle Bagwell, 2008.
"Collusion With Persistent Cost Shocks,"
Econometric Society, vol. 76(3), pages 493-540, 05.
- Steffen Hoernig, 2007. "Bertrand Games and Sharing Rules," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(3), pages 573-585, June.
- Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
- Yossi Spiegel & David Gilo, 2004. "Partial cross ownership and tacit collusion," Econometric Society 2004 North American Summer Meetings 335, Econometric Society.
- Blume, Andreas, 2003. "Bertrand without fudge," Economics Letters, Elsevier, vol. 78(2), pages 167-168, February.
- Deneckere, R., 1989. "Capacity-Constrained Price Competition When Unit Costs Differ," Purdue University Economics Working Papers 958, Purdue University, Department of Economics.
- McAfee, R Preston & McMillan, John, 1992.
American Economic Review,
American Economic Association, vol. 82(3), pages 579-599, June.
- Cramton, Peter C & Palfrey, Thomas R, 1990.
"Cartel Enforcement with Uncertainty about Costs,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 17-47, February.
- Peter Cramton & Thomas R. Palfrey, 1991. "Cartel Enforcement with Uncertainty About Costs," Papers of Peter Cramton 90ier, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- Cramton, Peter C. & Palfrey, Thomas R., 1986. "Cartel Enforcement with Uncertainty About Costs," Working Papers 619, California Institute of Technology, Division of the Humanities and Social Sciences.
- Kihlstrom, R. & Vives, X., 1989.
"Collusion By Asymmetricaly Informed Firms,"
UFAE and IAE Working Papers
125-89, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Susan Athey & Kyle Bagwell, 1999.
"Optimal Collusion with Private Information,"
99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
- David Collie, 2004. "Sustaining Collusion With Asymmetric Costs," Royal Economic Society Annual Conference 2004 155, Royal Economic Society.
- Jeanine Miklós-Thal, 2011.
"Optimal collusion under cost asymmetry,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
- B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
- James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
- Helder Vasconcelos, 2005. "Tacit Collusion, Cost Asymmetries, and Mergers," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 39-62, Spring.
- Martin Pesendorfer, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 381-411.
- Jehiel, Philippe, 1992. "Product differentiation and price collusion," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 633-641, December.
- Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
- Carl Davidson & Raymond Deneckere, 1984.
"Excess Capacity and Collusion,"
675, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Roberts, Kevin, 1985. "Cartel Behaviour and Adverse Selection," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 401-413, June.
- Raymond J. Deneckere & Dan Kovenock, 1988.
"Capacity-Constrained Price Competition When Unit Costs Differ,"
861, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Deneckere, R.J. & Kovenock, D., 1994. "Capacity Constrained Price Competition when Unit Costs Differ," Purdue University Economics Working Papers 1056, Purdue University, Department of Economics.
- Raymond Deneckere & Dan Kovenock, 1994. "Capacity-Constrained Price Competition when Unit Costs Differ," Industrial Organization 9411001, EconWPA, revised 15 Nov 1994.
- Robert Porter, 2005. "Detecting Collusion," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(2), pages 147-167, December.
- Harrington, Joseph E, Jr, 1991. "The Determination of Price and Output Quotas in a Heterogeneous Cartel," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 767-792, November.
- Lambson Val Eugene, 1994. "Some Results on Optimal Penal Codes in Asymmetric Bertrand Supergames," Journal of Economic Theory, Elsevier, vol. 62(2), pages 444-468, April.
- Dan Kovenock & Raymond J. Deneckere, 1996. "Bertrand-Edgeworth duopoly with unit cost asymmetry (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 1-25.
- Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, December.
- Val Eugene Lambson, 1987. "Optimal Penal Codes in Price-setting Supergames with Capacity Constraints," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 385-397.
- Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
- Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:46:y:2011:i:1:p:99-125. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.