Price Cutting and Business Stealing in Imperfect Cartels

B. Douglas Bernheim and Erik Madsen

No 19993, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Though economists have made substantial progress toward formulating theories of collusion in industrial cartels that account for a variety of fact patterns, important puzzles remain. Standard models of repeated interaction formalize the observation that cartels keep participants in line through the threat of punishment, but they fail to explain two important factual observations: first, apparently deliberate cheating actually occurs; second, it frequently goes unpunished even when it is detected. We propose a theory of "equilibrium price cutting and business stealing" in cartels to bridge this gap between theory and observation.

JEL-codes: D43 L41 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-com, nep-hpe, nep-ind and nep-mic
Note: IO
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Published as B. Douglas Bernheim & Erik Madsen, 2017. "Price Cutting and Business Stealing in Imperfect Cartels," American Economic Review, vol 107(2), pages 387-424.

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