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Optimal Collusion under Cost Asymmetry

  • Jeanine Thal

    (Crest)

Cost asymmetry is generally thought to hinder collusion because a more efficient firm hasboth less to gain from collusion and less to fear from retaliation. Our paper reexamines thisconventional wisdom and characterizes optimal collusion without any prior restriction on theclass of strategies. We first stress that firms can ”collude” on retaliation schemes that maximallypunish even the most efficient firm. This implies that whenever collusion is sustainable undercost 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, inthe presence of side payments, cost asymmetry generally facilitates collusion.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2005-36.

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Length: 35
Date of creation: 2005
Date of revision:
Handle: RePEc:crs:wpaper:2005-36
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  12. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  13. 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.
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  25. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-65, Autumn.
  26. 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.
  27. 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.
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