On the difficulty of collusion in the presence of a more efficient outsider

Guillaume Cheikbossian and Philippe Mahenc

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Abstract: We study the ability of several identical firms to collude in the presence of a more efficient firm, which does not take part in their collusive agreement. The cartel firms adopt stick-and-carrot strategies, while the efficient firm plays its one-period best-response function, regardless of the history of play. We characterize the most collusive symmetric punishment, which maximizes the scope for collusion. We then find that either a lower cost disadvantage or a smaller cartel size facilitates collusion. Finally, we compare our results with those obtained in the standard setup where all firms participate in the collusive agreement.

Keywords: cost asymmetry; optimal punishments; outsider; repeated game; tacit collusion (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-bec, nep-com and nep-gth
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Published in Journal of Institutional and Theoretical Economics, 2018, 174 (4), pp.595--628. ⟨10.1628/093245617X15120238641839⟩

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Journal Article: On the Difficulty of Collusion in the Presence of a More Efficient Outsider (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01950057

DOI: 10.1628/093245617X15120238641839

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