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Cartel Enforcement with Uncertainty About Costs

Peter Cramton () and Thomas Palfrey

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: What cartel agreements are possible when firms have private information about production costs? For private cost uncertainty we characterize the set of cartel agreements that can be supported, recognizing incentive and participation constraints. If defection results in either Cournot or Bertrand competition, the incentive problem in large cartels is severe enough to prevent the cartel from achieving the monopoly outcome. However, if the cartel agreement requires less than unanimous ratification by the member firms, then the incentive problem can be overcome in large cartels. With common cost uncertainty, perfect collusion is possible in large cartels, regardless of the ratification rule.

Keywords: Private Information; Collusion; Cartel Agreements (search for similar items in EconPapers)
JEL-codes: D82 L13 (search for similar items in EconPapers)
Pages: 31 pages
Date: 1991, Revised 1998-06-09
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Published in International Economic Review, 31:1, February 1991, pages 17-47.

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Related works:
Journal Article: Cartel Enforcement with Uncertainty about Costs (1990) Downloads
Working Paper: Cartel Enforcement with Uncertainty About Costs (1986) Downloads
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