Optimal Collusion with Internal Contracting

Gea M. Lee

No 08-2008, Working Papers from Singapore Management University, School of Economics

Abstract: In this paper, we develop a model of collusion in which two firms play an infinitely repeated Bertrand game when each firm has a privately-informed agent. The colluding firms, fixing prices, allocate market shares based on the agent’s information as to cost types. We emphasize that the presence of privately-informed agents may provide firms with a strategic opportunity to exploit an interaction between internal contracting and market-sharing arrangement: the contracts with agents may be used to induce firms’ truthful communication in their collusion, and collusive market-share allocation may act to reduce the agents’ information rents.

Keywords: Optimal collusion; internal contract; privately-informed agents; price-fixing (search for similar items in EconPapers)
JEL-codes: C73 L13 L14 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2008-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in SMU Economics and Statistics Working Paper Series

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Related works:
Journal Article: Optimal collusion with internal contracting (2010)
Working Paper: Optimal Collusion with Internal Contracting (2008)
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