Endogenous Monitoring in a Partnership Game

Anna Sanktjohanser

American Economic Review, 2020, vol. 110, issue 3, 776-96

Abstract: I consider a repeated game in which, due to imperfect monitoring, no collusion can be sustained. I add a self-interested monitor who commits to obtain private signals of firms' actions and sends a public message. The monitor makes an offer specifying the precision of the signals obtained and the amount to be paid in return. First, with a low monitoring cost, collusive equilibria exist. Second, collusive equilibria are monitor-preferred. Third, in monitor-preferred equilibria, firms' payoffs are decreasing in the discount factor. My model helps explain cartel agreements between self-interested parties and firms in legal industries in the United States and Europe.

JEL-codes: C73 D43 D82 L12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1257/aer.20161491

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