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Opportunism Problems of Colluding Manufacturers

Author

Listed:
  • Jana Gieselmann

    (HHU)

  • Matthias Hunold
  • Johannes Muthers
  • Alexander Rasch

Abstract

In a market with two exclusive manufacturer-retailer pairs, we show that colluding manufacturers may not be able to attain supra-competitive profits when contracts with retailers are secret. The stability of manufacturer collusion depends on the retailers’ beliefs. We consider various dynamic beliefs and find that industry-profit-maximizing collusion is feasible for some. Collusion is even renegotiation-proof under trigger beliefs if a novel condition of opportunism-proofness holds, which can be more demanding than the standard stability condition. Trigger beliefs are not flexible enough to allow for formation of collusion. We demonstrate that adaptive beliefs may be necessary for the formation of manufacturer collusion in a non-collusive industry.

Suggested Citation

  • Jana Gieselmann & Matthias Hunold & Johannes Muthers & Alexander Rasch, 2021. "Opportunism Problems of Colluding Manufacturers," Economics working papers 2021-18, Department of Economics, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:econwp:2021-18
    Note: English
    as

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    File URL: http://www.econ.jku.at/papers/2021/wp2118.pdf
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    More about this item

    Keywords

    opportunism; credible punishment; cartel formation; manufacturer collusion; vertical relations; renegotiation-proof; secret contracting;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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