Cartel Enforcement with Uncertainty About Costs
What cartel agreements are possible when firms have private information about production costs? For private cost uncertainty we 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.
|Date of creation:||1991|
|Date of revision:||09 Jun 1998|
|Publication status:||Published in International Economic Review, 31:1, February 1991, pages 17-47.|
|Contact details of provider:|| Postal: Economics Department, University of Maryland, College Park, MD 20742-7211|
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