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


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: College of Business and Social Sciences > 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
Publication ISSN: 0167-7187
Last Modified: 18 Jul 2024 07:06
Date Deposited: 14 Nov 2017 09:40
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Related URLs: http://linkingh ... 167718717300267 (Publisher URL)
PURE Output Type: Article
Published Date: 2018-01-01
Published Online Date: 2017-11-11
Accepted Date: 2017-10-24
Authors: Garrod, Luke
Olczak, Matthew (ORCID Profile 0000-0001-6808-3832)

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