Yardstick competition, franchise bidding and firms' incentives to collude

Eshien Chong () and Freddy Huet ()
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Freddy Huet: GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique

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Abstract: Collusion seems to be a pervasive problem when regional monopoly rights are auctioned to private firms. This leads us to study whether firms may collude if the regulator uses yardstick competition to simulate competitive forces, and how this is affected when both schemes are used. Using an infinitely repeated game framework, we find that collusion is sustainable when firms are sufficiently patient under yardstick competition. An additional franchise bidding mechanism can even help firms sustain collusion when they are impatient. When temporary monopoly rights are assigned for sufficiently long periods of time, collusion may not be sustainable even when firms are patient.

Keywords: Collusion; franchise bidding; local public services; yardstick competition (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

Published in Review of Industrial Organization, 2009, 35 (1), pp.149-169

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Related works:
Journal Article: Yardstick Competition, Franchise Bidding and Firms’ Incentives to Collude (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00479475

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