Tacit Collusion and Voluntary Disclosure: Theory and Evidence from the U.S. Automotive Industry

Jeremy Bertomeu (), John Harry Evans (), Mei Feng () and Ayung Tseng ()
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Jeremy Bertomeu: Rady School of Management, University of California, San Diego, La Jolla, California 92093
John Harry Evans: Joseph M. Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260
Mei Feng: Joseph M. Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260
Ayung Tseng: Kelley School of Business, Indiana University, Bloomington, Indiana 47405

Management Science, 2021, vol. 67, issue 3, 1851-1875

Abstract: We develop a model of voluntary disclosure and production decisions and use it to establish that firms will tacitly collude by disclosing when current market demand is low and when the decision horizon is long. Low demand helps sustain tacit collusion, because deviation from tacit collusion yields only a limited increase in profit when demand is low. Similarly, longer decision horizons give firms incentive to receive the benefits of collusion over a longer period. Using monthly production forecasts issued by the Big Three U.S. automobile manufacturers, we show that the frequency, horizon, and accuracy of the production forecasts increase when demand decreases and when the firms focus more on long-term profit. Collectively, the evidence suggests that firms use voluntary disclosures to tacitly collude. This paper was accepted by Brian Bushee, accounting.

Keywords: collusion; disclosure; automobile industry (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:3:p:1851-1875

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