Collusion under Imperfect Monitoring with Asymmetric Firms

Luke Garrod and Olczak Matthew

MPRA Paper from University Library of Munich, Germany

Abstract: We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms must monitor the agreement through their privately observed sales and prices. In this private monitoring setting, we show that all firms can infer when at least one firm’s sales are below some firm-specific “trigger level”. This public information ensures that firms can detect deviations perfectly if fluctuations in market demand are sufficiently small. Otherwise, there can be collusion under imperfect public monitoring where punishment phases occur on the equilibrium path. We find that symmetry faciliates collusion. Yet, we also show that if the fluctuations in market demand are sufficiently large, then the collusive prices of symmetric capacity distributions are actually lower than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy.

Keywords: capacity constraints; mergers; collusion; imperfect monitoring (search for similar items in EconPapers)
JEL-codes: D43 D82 K21 L12 L41 (search for similar items in EconPapers)
Date: 2016-03-17
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-mic and nep-pke
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Collusion Under Imperfect Monitoring with Asymmetric Firms (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:70647

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