Optimal Collusion under Cost Asymmetry

Jeanine Miklós-Thal ()

MPRA Paper from University Library of Munich, Germany

Abstract: Cost asymmetry is generally thought to hinder collusion because a more efficient firm has both more to gain from a deviation and less to fear from retaliation than less efficient firms. Our paper reexamines this conventional wisdom and characterizes optimal collusion without any prior restriction on the class of strategies. We first stress that firms can credibly agree on retaliation schemes that maximally punish even the most efficient firm. This implies that whenever collusion is sustainable under cost symmetry, some collusion is also sustainable under cost asymmetry; efficient collusion, however, remains more di¢ cult to sustain when costs are asymmetric. Finally, we show that, in the presence of side payments, cost asymmetry generally facilitates collusion.

Keywords: horizontal collusion; cost asymmetry; optimal punishments; side payments (search for similar items in EconPapers)
JEL-codes: C72 L13 L41 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-bec, nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Optimal collusion under cost asymmetry (2011)
Working Paper: Optimal Collusion under Cost Asymmetry (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11044

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