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Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices

  • Joseph E. Harrington, Jr.
  • Andrzej Skrzypacz

Motivated by recent cartel practices, a stable collusive agreement is characterized when firms' prices and quantities are private information. Conditions are derived whereby an equilibrium exists in which firms truthfully report their sales and then make transfers within the cartel based on these reports. The properties of this equilibrium fit well with the cartel agreements used in a number of markets including citric acid, lysine, and vitamins.

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Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 555.

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Date of creation: Aug 2009
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Handle: RePEc:jhu:papers:555
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  1. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-65, Autumn.
  2. William Fuchs, 2005. "Contracting with Repeated Moral Hazard and Private Evaluations," Discussion Papers 04-012, Stanford Institute for Economic Policy Research.
  3. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
  4. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  5. Abreu, Dilip & Milgrom, Paul & Pearce, David, 1991. "Information and Timing in Repeated Partnerships," Econometrica, Econometric Society, vol. 59(6), pages 1713-33, November.
  6. Johannes Horner & Wojciech Olszewski, 2005. "The Folk Theorem for Games with Private, Almost-Perfect Monitoring," NajEcon Working Paper Reviews 172782000000000006,
  7. Aoyagi, Masaki, 2002. "Collusion in Dynamic Bertrand Oligopoly with Correlated Private Signals and Communication," Journal of Economic Theory, Elsevier, vol. 102(1), pages 229-248, January.
  8. Ichiro Obara, 2005. "Folk Theorem with Communication," UCLA Economics Online Papers 366, UCLA Department of Economics.
  9. Johannes Hörner & Wojciech Olszewski, 2006. "The folk theorem for games with private almost-perfect monitoring," Post-Print halshs-00119553, HAL.
  10. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
  11. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
  12. Kandori, Michihiro, 2002. "Introduction to Repeated Games with Private Monitoring," Journal of Economic Theory, Elsevier, vol. 102(1), pages 1-15, January.
  13. Zheng, Bingyong, 2008. "Approximate efficiency in repeated games with correlated private signals," Games and Economic Behavior, Elsevier, vol. 63(1), pages 406-416, May.
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