Opportunism Problems of Colluding Manufacturers

Jana Gieselmann (), Matthias Hunold, Johannes Muthers and Alexander Rasch
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Jana Gieselmann: HHU

No 2021-18, Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria

Abstract: In a market with two exclusive manufacturer-retailer pairs, we show that colluding manufacturers may not be able to attain supra-competitive profits when contracts with retailers are secret. The stability of manufacturer collusion depends on the retailers’ beliefs. We consider various dynamic beliefs and find that industry-profit-maximizing collusion is feasible for some. Collusion is even renegotiation-proof under trigger beliefs if a novel condition of opportunism-proofness holds, which can be more demanding than the standard stability condition. Trigger beliefs are not flexible enough to allow for formation of collusion. We demonstrate that adaptive beliefs may be necessary for the formation of manufacturer collusion in a non-collusive industry.

Keywords: opportunism; credible punishment; cartel formation; manufacturer collusion; vertical relations; renegotiation-proof; secret contracting (search for similar items in EconPapers)
JEL-codes: C73 D43 L13 L41 L81 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2021-12
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-reg
Note: English
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Persistent link: https://EconPapers.repec.org/RePEc:jku:econwp:2021-18

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