Explicit vs Tacit Collusion:The Effects of Firm Numbers and Asymmetries

Garrod, Luke and Olczak, Matthew (2017). Explicit vs Tacit Collusion:The Effects of Firm Numbers and Asymmetries. International Journal of Industrial Organization ,

Abstract

In an infinitely repeated game where firms with (possibly asymmetric) capacity constraints can make secret price cuts, we analyse the incentives for explicit collusion when firms can alternatively collude tacitly. Tacit collusion can involve price wars on the equilibrium path. Explicit collusion involves firms secretly sharing their private information to avoid such price wars, but this is illegal and runs the risk of sanctions. We find that, in contrast to the conventional wisdom but consistent with some empirical evidence, illegal cartels are least likely to arise in markets with a few symmetric firms, because tacit collusion is relatively more appealing in such markets. We discuss the implications for anti-cartel enforcement policy.

Publication DOI: https://doi.org/10.1016/j.ijindorg.2017.10.006
Divisions: Aston Business School > Economics, Finance & Entrepreneurship
Additional Information: © 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Uncontrolled Keywords: Cartels,Tacit collusion,Imperfect monitoring,Capacity constraints
Full Text Link: http://linkingh ... 167718717300267
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Published Date: 2017-11-11
Authors: Garrod, Luke
Olczak, Matthew ( 0000-0001-6808-3832)

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Version: Accepted Version

Access Restriction: Restricted to Repository staff only until 11 November 2019.

License: Creative Commons Attribution Non-commercial No Derivatives


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