Explicit vs Tacit Collusion: The Effects of Firm Numbers and Asymmetries

Luke Garrod, Matthew Olczak

Research output: Contribution to journalArticle

Abstract

In an infinitely repeated game where firms with (possibly asymmetric) capacity constraints can make secret price cuts, we analyse the incentives for explicit collusion when firms can alternatively collude tacitly. Tacit collusion can involve price wars on the equilibrium path. Explicit collusion involves firms secretly sharing their private information to avoid such price wars, but this is illegal and runs the risk of sanctions. We find that, in contrast to the conventional wisdom but consistent with some empirical evidence, illegal cartels are least likely to arise in markets with a few symmetric firms, because tacit collusion is relatively more appealing in such markets. We discuss the implications for anti-cartel enforcement policy.
Original languageEnglish
Pages (from-to)1-25
JournalInternational Journal of Industrial Organization
Volume56
Early online date11 Nov 2017
DOIs
Publication statusPublished - 1 Jan 2018

Fingerprint

Tacit collusion
Asymmetry
Price war
Collusion
Capacity constraints
Infinitely repeated games
Wisdom
Enforcement
Empirical evidence
Incentives
Cartels
Sanctions
Cartel
Private information

Bibliographical note

© 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

  • Cartels
  • Tacit collusion
  • Imperfect monitoring
  • Capacity constraints

Cite this

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Explicit vs Tacit Collusion : The Effects of Firm Numbers and Asymmetries. / Garrod, Luke; Olczak, Matthew.

In: International Journal of Industrial Organization, Vol. 56, 01.01.2018, p. 1-25.

Research output: Contribution to journalArticle

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