A theory of hub-and-spoke collusion

Nicolas Sahuguet and Alexis Walckiers

International Journal of Industrial Organization, 2017, vol. 53, issue C, 353-370

Abstract: We develop a model of hub-and-spoke collusion between a manufacturer and two retailers. Demand is stochastic, and collusion between retailers is difficult; the best collusive equilibrium is inefficient (Rotemberg and Saloner (1986)). In the hub-and-spoke collusive agreement, retailers transmit their information about the state of demand to the supplier. The supplier uses this information to adjust the wholesale price. By organizing the collusion, the supplier increases profits of the vertical chain. We show that, surprisingly, this type of collusive agreement can under some conditions improve consumer welfare.

Keywords: collusion; vertical relations; cartel; information exchange (search for similar items in EconPapers)
JEL-codes: L13 L41 L42 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:53:y:2017:i:c:p:353-370

DOI: 10.1016/j.ijindorg.2016.04.008

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