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Fine Cartels

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  • David K Levine

Abstract

This paper studies a simple model of a repeated cartel that can punish using both voluntary fines and inefficient prices wars. The idea is to use the fines in response to noisy signals of bad behavior and back it up with threats of price wars in response to the easily observed failure to pay the voluntary fines. The model is shown to deliver the insights of modern repeated game theory in an empirically accurate and tractable form.
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Suggested Citation

  • David K Levine, 2020. "Fine Cartels," Levine's Working Paper Archive 786969000000001554, David K. Levine.
    • Handle: RePEc:cla:levarc:786969000000001554
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    File URL: http://www.dklevine.com/archive/refs4786969000000001554.pdf
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    References listed on IDEAS

    as
    1. Drew Fudenberg & David Levine & Wolfgang Pesendorfer, 2008. "When Are Nonanonymous Players Negligible?," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 6, pages 95-120, World Scientific Publishing Co. Pte. Ltd..
    2. Richard Kihlstrom & Xavier Vives, 1992. "Collusionby Asymmetrically Informed Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(2), pages 371-396, June.
    3. Postlewaite, Andrew & Roberts, John, 1977. "A Note on the Stability of Large Cartels," Econometrica, Econometric Society, vol. 45(8), pages 1877-1878, November.
    4. Drew Fudenberg & David K. Levine, 2008. "The Nash-threats folk theorem with communication and approximate common knowledge in two player games," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 15, pages 331-343, World Scientific Publishing Co. Pte. Ltd..
    5. David K. Levine & Andrea Mattozzi & Salvatore Modica, 2021. "Trade Associations: Why Not Cartels?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 47-64, February.
    6. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    7. Joseph E. Harrington & Andrzej Skrzypacz, 2011. "Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices," American Economic Review, American Economic Association, vol. 101(6), pages 2425-2449, October.
    8. Levine, David K. & Modica, Salvatore, 2016. "Peer discipline and incentives within groups," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 19-30.
    9. Goldlücke, Susanne & Kranz, Sebastian, 2012. "Infinitely repeated games with public monitoring and monetary transfers," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1191-1221.
    10. Chan, Jimmy & Zhang, Wenzhang, 2015. "Collusion enforcement with private information and private monitoring," Journal of Economic Theory, Elsevier, vol. 157(C), pages 188-211.
    11. David Genesove & Wallace P. Mullin, 2001. "Rules, Communication, and Collusion: Narrative Evidence from the Sugar Institute Case," American Economic Review, American Economic Association, vol. 91(3), pages 379-398, June.
    12. Drew Fudenberg & David Levine & Eric Maskin, 2008. "The Folk Theorem With Imperfect Public Information," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 12, pages 231-273, World Scientific Publishing Co. Pte. Ltd..
    13. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1990. "Toward a Theory of Discounted Repeated Games with Imperfect Monitoring," Econometrica, Econometric Society, vol. 58(5), pages 1041-1063, September.
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    15. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    16. Levine, David K. & Modica, Salvatore, 2017. "Size, fungibility, and the strength of lobbying organizations," European Journal of Political Economy, Elsevier, vol. 49(C), pages 71-83.
    17. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
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    21. Roberts, Kevin, 1985. "Cartel Behaviour and Adverse Selection," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 401-413, June.
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    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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