Technology Uncertainty and Market Collusion

Labrecciosa Paola () and Luca Colombo
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Labrecciosa Paola: Monash University

The B.E. Journal of Economic Analysis & Policy, 2010, vol. 10, issue 1, 17

Abstract: In this paper, we propose technology uncertainty as a new factor relevant to market collusion. We analyze an infinitely repeated quantity game where, for each firm, the marginal productivity of the input employed in the production process is affected by an unobservable shock. Each firm faces technology uncertainty, measured by the variance of the shocks, in every period. We show that, under both grim trigger strategies and optimal punishments, technology uncertainty enhances cartel stability, suggesting that, in industries characterized by technology uncertainty, the actions of the antitrust authorities should be intensified. We also show that collusion is less likely when technology shocks are highly correlated, implying that regulators interested in deterring collusion should promote the formation of industrial clusters.

Keywords: antitrust policy; technology uncertainty; cartel stability; grim trigger strategies; optimal punishments (search for similar items in EconPapers)
Date: 2010
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DOI: 10.2202/1935-1682.2401

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