Colluding through Suppliers

Salvatore Piccolo ()

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: In a dynamic game between N retailers and a large number of suppliers, I show that inefficient contracting emerges as a mechanism to implement collusion among retailers, building on the natural ‘complementarity’ between retail and wholesale prices. When efficient collusion is not sustainable, this complementarity allows retailers to rely on inefficient input supply, entailing double marginalization and negative franchise fees, to squeeze the wedge between collusive and deviation profits. I also study the role of communication on the equilibrium outcomes of games where retailers have the initiative. It turns out that communication is indeed fundamental to strengthen cartels' sustainability, although generating efficiency losses.

Keywords: Bertrand competition; double marginalization; collusion; competing hierarchies. (search for similar items in EconPapers)
JEL-codes: D21 D43 L42 (search for similar items in EconPapers)
Date: 2009-04-24, Revised 2010-04-08
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in RAND Journal of Economics, 2012, Vol. 43, 492-513.

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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:224

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