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Price Cutting and Business Stealing in Imperfect Cartels

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  • B. Douglas Bernheim
  • Erik Madsen

Abstract

Though economists have made substantial progress toward formulating theories of collusion in industrial cartels that account for a variety of fact patterns, important puzzles remain. Standard models of repeated interaction formalize the observation that cartels keep participants in line through the threat of punishment, but they fail to explain two important factual observations: first, apparently deliberate cheating actually occurs; second, it frequently goes unpunished even when it is detected. We propose a theory of "equilibrium price cutting and business stealing" in cartels to bridge this gap between theory and observation.

Suggested Citation

  • B. Douglas Bernheim & Erik Madsen, 2014. "Price Cutting and Business Stealing in Imperfect Cartels," NBER Working Papers 19993, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19993
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    Cited by:

    1. 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.
    2. Arevik Gnutzmann-Mkrtchyan & Hoffstadt, 2020. "Use and Abuse of Antidumping by Global Cartels," CESifo Working Paper Series 8729, CESifo.
    3. Escobar, Juan F. & Llanes, Gastón, 2018. "Cooperation dynamics in repeated games of adverse selection," Journal of Economic Theory, Elsevier, vol. 176(C), pages 408-443.
    4. Do, Jihwan, 2022. "Cheating and compensation in price-fixing cartels," Journal of Economic Theory, Elsevier, vol. 200(C).
    5. Calzolari, Giacomo & Calvano, Emilio & Denicolo, Vincenzo & Pastorello, Sergio, 2021. "Algorithmic collusion with imperfect monitoring," CEPR Discussion Papers 15738, C.E.P.R. Discussion Papers.
    6. Calvano, Emilio & Calzolari, Giacomo & Denicoló, Vincenzo & Pastorello, Sergio, 2021. "Algorithmic collusion with imperfect monitoring," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    7. Julio B. Clempner & Alexander S. Poznyak, 2021. "Analytical Method for Mechanism Design in Partially Observable Markov Games," Mathematics, MDPI, vol. 9(4), pages 1-15, February.
    8. Bayona, Anna & López, Ángel L. & Manganelli, Anton-Giulio, 2022. "Common ownership, corporate control and price competition," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1066-1075.
    9. Suehyun Kwon, 2019. "Informed-Principal Problem in Mechanisms with Limited Commitment," CESifo Working Paper Series 7513, CESifo.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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