Collusion under imperfect monitoring with asymmetric firms

Luke Garrod, Matthew Olczak

Research output: Contribution to journalArticle

Abstract

We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms’ sales and prices are private information. We show that all firms can infer when at least one firm’s sales are below some firm-specific ‘trigger level’. When firms use this public information to monitor the collusive agreement, price wars may occur on the equilibrium path. Symmetry facilitates collusion but, if price wars are sufficiently long, then the optimal collusive prices of symmetric capacity distributions are lower on average than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy.
Original languageEnglish
Pages (from-to)654-682
Number of pages29
JournalJournal of Industrial Economics
Volume65
Issue number3
Early online date15 Sep 2017
DOIs
Publication statusPublished - 23 Oct 2017

Bibliographical note

© 2017 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd. This is the peer reviewed version of the following article, which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1111/joie.12145/abstract . This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Keywords

  • capacity constraints, mergers, collusion,
  • imperfect monitoring

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