Collusion under monitoring of sales

Authors


  • We appreciate the comments of two anonymous referees, Marco Battaglini, Sadao Nagaoka, Rui Ota, Phil Reny, Mike Whinston and seminar or conference participants at the University of Tokyo, Hitotsubashi University, 2004 Duke– Northwestern–Texas IO Theory Conference, 2005 International Industrial Organization Conference and 2005 World Congress of the Econometric Society. The first author acknowledges the support of the National Science Foundation under grant nos. SES-0209486 and SES-0516943 and the hospitality of the Department of Economics at Harvard University. The second author acknowledges the financial support of the Center for Electronic Business and Commerce at the Stanford Graduate School of Business.

Abstract

Collusion under imperfect monitoring is explored when firms' prices are private information and their quantities are public information; such an information structure is consistent with several recent price-fixing cartels, such as those in lysine and vitamins. For a class of symmetric oligopoly games, it is shown that symmetric equilibrium punishments cannot sustain any collusion. An asymmetric punishment is characterized that does sustain collusion and it has firms whose sales exceed their quotas compensating those firms with sales below their quotas. In practice, cartels could have performed such transfers through sales among the cartel members.

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