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Optimal collusion under cost asymmetry

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  • Jeanine Miklós-Thal

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Abstract

Cost asymmetry is generally thought to hinder collusion because a more efficient firm has both more to gain from deviations 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 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 difficult to sustain when costs are asymmetric. Finally, we show that in the presence of side payments cost asymmetry facilitates collusion.
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  • Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
  • Handle: RePEc:spr:joecth:v:46:y:2011:i:1:p:99-125
    DOI: 10.1007/s00199-009-0502-9
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    File URL: http://hdl.handle.net/10.1007/s00199-009-0502-9
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    Cited by:

    1. Bhattacharjea, Aditya & Sinha, Uday Bhanu, 2015. "Multi-market collusion with territorial allocation," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 42-50.
    2. Etienne Billette de Villemeur & Laurent Flochel & Bruno Versaevel, 2013. "Optimal collusion with limited liability," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(3), pages 203-227, September.
    3. Goldlücke, Susanne & Kranz, Sebastian, 2013. "Renegotiation-proof relational contracts," Games and Economic Behavior, Elsevier, vol. 80(C), pages 157-178.
    4. Harrington, Joseph E. & Hernan Gonzalez, Roberto & Kujal, Praveen, 2016. "The relative efficacy of price announcements and express communication for collusion: Experimental findings," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 251-264.
    5. Jeanine Miklós-Thal, 2011. "Optimal collusion under cost asymmetry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 99-125, January.
    6. repec:eee:indorg:v:53:y:2017:i:c:p:99-113 is not listed on IDEAS
    7. António Brandão & Joana Pinho & Hélder Vasconcelos, 2014. "Asymmetric Collusion with Growing Demand," Journal of Industry, Competition and Trade, Springer, vol. 14(4), pages 429-472, December.
    8. Mouraviev, Igor & Rey, Patrick, 2011. "Collusion and leadership," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 705-717.
    9. John Asker & Heski Bar-Isaac, 2014. "Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals," American Economic Review, American Economic Association, vol. 104(2), pages 672-686, February.
    10. John Asker & Heski Bar-Isaac, 2010. "Exclusionary Minimum Resale Price Maintenance," NBER Working Papers 16564, National Bureau of Economic Research, Inc.
    11. Stefano Colombo, 2011. "Pricing Policy and Partial Collusion," Journal of Industry, Competition and Trade, Springer, vol. 11(4), pages 325-349, December.
    12. Aitor Ciarreta & Carlos Gutiérrez-Hita, 2012. "Collusive behaviour under cost asymmetries when firms compete in supply functions," Journal of Economics, Springer, vol. 106(3), pages 195-219, July.
    13. Kranz, Sebastian & Ohlendorf, Susanne, 2009. "Renegotiation-Proof Relational Contracts with Side Payments," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 259, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    14. Akinbosoye, Osayi & Bond, Eric W. & Syropoulos, Constantinos, 2012. "On the stability of multimarket collusion in price-setting supergames," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 253-264.
    15. Albano Gian Luigi & Spagnolo Giancarlo, 2010. "Asymmetry and Collusion in Sequential Procurement: A "Large Lot Last" Policy," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-18, October.
    16. Correia-da-Silva João & Pinho Joana & Vasconcelos Hélder, 2015. "How Should Cartels React to Entry Triggered by Demand Growth?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(1), pages 1-47, January.
    17. Miklós-Thal, Jeanine, 2008. "Delivered pricing and the impact of spatial differentiation on cartel stability," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1365-1380, November.
    18. Flochel, Laurent & Versaevel, Bruno & de Villemeur, Étienne, 2009. "Optimal Collusion with Limited Liability and Policy Implications," IDEI Working Papers 547, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2011.
    19. Domenico Buccella, 2010. "FDI, International Trade and Union Collusion," FIW Working Paper series 050, FIW.
    20. Biancini, Sara & Ettinger, David, 2017. "Vertical integration and downstream collusion," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 99-113.
    21. Argenton, Cédric & Müller, Wieland, 2012. "Collusion in experimental Bertrand duopolies with convex costs: The role of cost asymmetry," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 508-517.
    22. Guigou Jean-Daniel & de Lamirande Patrick, 2015. "Managerial Collusive Behavior under Asymmetric Incentive Schemes," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(2), pages 333-350, July.

    More about this item

    Keywords

    Horizontal collusion; Cost asymmetry; Optimal punishments; Side payments; L11; L41; C72;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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