IDEAS home Printed from https://ideas.repec.org/p/clt/sswopa/619.html
   My bibliography  Save this paper

Cartel Enforcement with Uncertainty About Costs

Author

Listed:
  • Cramton, Peter C.
  • Palfrey, Thomas R.

Abstract

What cartel agreements are possible when firms have private information about production costs? For private cost uncertainty, the authors characterize the set of cartel agreements that can be supported, recognizing incentive and participation constraints. If defection results in either Cournot or Bertrand competition, the incentive problem in large cartels is severe enough to prevent the cartel from achieving the monopoly outcome. However, if the cartel agreement requires less than unanimous ratification by the member firms, then the incentive problem can be overcome in large cartels. With common cost uncertainty, perfect collusion is possible in large cartels, regardless of the ratification rule. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • 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.
  • Handle: RePEc:clt:sswopa:619
    as

    Download full text from publisher

    File URL: http://www.hss.caltech.edu/SSPapers/wp-old.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-599, June.
      • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    2. Kihlstrom, Richard & Vives, Xavier, 1992. "Collusion by Asymmetrically Informed Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(2), pages 371-396, Summer.
    3. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    4. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    5. Richard N. Clarke, 1983. "Collusion and the Incentives for Information Sharing," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 383-394, Autumn.
    6. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
    7. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
    8. Thomas R. Palfrey, 1985. "Uncertainty Resolution, Private Information Aggregation and the Cournot Competitive Limit," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 69-83.
    9. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-343, March.
    10. Hallagan, William S, 1985. "Contracting Problems and the Adoption of Regulatory Cartels," Economic Inquiry, Western Economic Association International, vol. 23(1), pages 37-56, January.
    11. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
    12. Drew Fudenberg & Eric Maskin, 2008. "The Folk Theorem In Repeated Games With Discounting Or With Incomplete Information," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 11, pages 209-230, World Scientific Publishing Co. Pte. Ltd..
    13. David P. Baron & David Besanko, 1984. "Regulation, Asymmetric Information, and Auditing," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 447-470, Winter.
    14. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    15. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    16. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
    17. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-883, December.
    18. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
    19. Carl Shapiro, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 433-446.
    20. Riordan, Michael H & Sappington, David E M, 1987. "Awarding Monopoly Franchises," American Economic Review, American Economic Association, vol. 77(3), pages 375-387, June.
    21. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maura P. Doyle & Christopher M. Snyder, 1999. "Information Sharing and Competition in the Motor Vehicle Industry," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1326-1364, December.
    2. Susan Athey & Kyle Bagwell & Chris Sanchirico, 2004. "Collusion and Price Rigidity," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 317-349.
    3. Gea M. Lee, 2004. "Collusion with Internal Contracting," Econometric Society 2004 Far Eastern Meetings 693, Econometric Society.
    4. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    5. Piccolo, Salvatore & Pagnozzi, Marco, 2013. "Information sharing between vertical hierarchies," Games and Economic Behavior, Elsevier, vol. 79(C), pages 201-222.
    6. Labrecciosa Paola & Colombo Luca, 2010. "Technology Uncertainty and Market Collusion," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-17, March.
    7. Mouraviev, Igor, 2006. "Private Observation, Tacit Collusion and Collusion with Communication," Working Paper Series 672, Research Institute of Industrial Economics.
    8. Myatt, David P. & Wallace, Chris, 2015. "Cournot competition and the social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 466-506.
    9. Lode Li, 2002. "Information Sharing in a Supply Chain with Horizontal Competition," Management Science, INFORMS, vol. 48(9), pages 1196-1212, September.
    10. Jean-Jacques Laffont, 1998. "Théorie des jeux et économie empirique : le cas des données issues d'enchères," Économie et Prévision, Programme National Persée, vol. 132(1), pages 121-137.
    11. Laffont, Jean-Jacques, 1997. "Game theory and empirical economics: The case of auction data 1," European Economic Review, Elsevier, vol. 41(1), pages 1-35, January.
    12. JOHNSON, Paul & ROBERT, Jacques, 1999. "Collusion in a Model of Repeated Auctions," Cahiers de recherche 9909, Universite de Montreal, Departement de sciences economiques.
    13. Fernando Branco, 1996. "Common value auctions with independent types," Review of Economic Design, Springer;Society for Economic Design, vol. 2(1), pages 283-309, December.
    14. José J. Sempere Monerris & Amparo Urbano & María Dolores Alepuz, 1998. "- Duopoly Price Communication," Working Papers. Serie AD 1998-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    15. Hyoduk Shin & Tunay I. Tunca, 2010. "Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination," Operations Research, INFORMS, vol. 58(6), pages 1592-1610, December.
    16. Bacchetta, Philippe & Espinosa, Maria Paz, 1995. "Information sharing and tax competition among governments," Journal of International Economics, Elsevier, vol. 39(1-2), pages 103-121, August.
    17. Laffont, Jean-Jacques, 1994. "The New Economics of Regulation Ten Years After," Econometrica, Econometric Society, vol. 62(3), pages 507-537, May.
    18. Wilson, Alistair J. & Wu, Hong, 2017. "At-will relationships: How an option to walk away affects cooperation and efficiency," Games and Economic Behavior, Elsevier, vol. 102(C), pages 487-507.
    19. Stefan Buehler & Dennis L. Gärtner, 2013. "Making Sense of Nonbinding Retail-Price Recommendations," American Economic Review, American Economic Association, vol. 103(1), pages 335-359, February.
    20. Chaim Fershtman & Ariel Pakes, 2000. "A Dynamic Oligopoly with Collusion and Price Wars," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 207-236, Summer.

    More about this item

    JEL classification:

    • 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:clt:sswopa:619. 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: . General contact details of provider: http://www.hss.caltech.edu/ss .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 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: Victoria Mason (email available below). General contact details of provider: http://www.hss.caltech.edu/ss .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.