Implicit Collusion in Non-Exclusive Contracting under Adverse Selection

Seungjin Han

Department of Economics Working Papers from McMaster University

Abstract: This paper studies how implicit collusion may take place through simple non-exclusive contracting under adverse selection when multiple buyers (e.g., entrepreneurs with risky projects) non-exclusively contract with multiple firms (e.g., banks). It shows that any price schedule can be supported as equilibrium terms of trade in the market if each firm's expected pro t is no less than its reservation profit. Firms sustain collusive outcomes through the triggering trading mechanism in which they change their terms of trade contingent only on buyers' reports on the lowest average price that the deviating firm's trading mechanism would induce. It suggests that a good can be overpriced in a competitive market even with fully rational traders and without firms' explicit collusive agreement.

Keywords: collusion; non-exclusive contracting; competing mechanisms (search for similar items in EconPapers)
JEL-codes: D43 D82 D86 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2012-11, Revised 2013-04
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Related works:
Journal Article: Implicit collusion in non-exclusive contracting under adverse selection (2014)
Working Paper: Implicit Collusion in Non-Exclusive Contracting under Adverse Selection (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2012-15

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