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Collusion under Imperfect Monitoring with Asymmetric Firms

Author

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  • Luke, Garrod
  • Matthew, Olczak
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.

Suggested Citation

  • Luke, Garrod & Matthew, Olczak, 2016. "Collusion under Imperfect Monitoring with Asymmetric Firms," MPRA Paper 70647, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70647
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    References listed on IDEAS

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    Cited by:

    1. Luke Garrod & Matthew Olczak, 2017. "Market Transparency and Collusion under Imperfect Monitoring," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2017-02, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    2. Luke Garrod & Matthew Olczak, 2021. "Supply‐ vs. Demand‐Side Transparency: The Collusive Effects Under Imperfect Public Monitoring," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 537-560, September.
    3. Garrod, Luke & Olczak, Matthew, 2016. "Collusion, Firm Numbers and Asymmetries Revisited," MPRA Paper 74352, University Library of Munich, Germany.
    4. Fagart, Thomas, 2022. "Collusion in capacity under irreversible investment," International Journal of Industrial Organization, Elsevier, vol. 81(C).
    5. Hattori, Keisuke, 2021. "Profit-Sharing vs Price-Fixing Collusion with Heterogeneous Firms," MPRA Paper 110800, University Library of Munich, Germany.
    6. Garrod, Luke & Olczak, Matthew, 2018. "Explicit vs tacit collusion: The effects of firm numbers and asymmetries," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 1-25.

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    More about this item

    Keywords

    capacity constraints; mergers; collusion; imperfect monitoring;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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