Collusion Under Imperfect Monitoring with Asymmetric Firms

We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms’ sales and prices are private information. We show that all firms can infer when at least one firm's sales are below some firm‐specific ‘trigger level.’ When firms use this public information to monitor the collusive agreement, price wars may occur on the equilibrium path. Symmetry facilitates collusion but, if price wars are sufficiently long, then the optimal collusive prices of symmetric capacity distributions are lower on average than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy.     

Collusion at the extensive margin

We augment the multi-market collusion model of Bernheim and Whinston (1990) by allowing for firm entry into, and exit from, individual markets. We show that this gives rise to a new mechanism by which a cartel can sustain a collusive agreement: Collusion at the extensive margin whereby firms collude by avoiding entry into each other's markets or territories. We characterise parameter values that sustain this type of collusion and identify the assumptions where this collusion is more likely to hold than its intensive margin counterpart. Specifically, it is demonstrated that where duopoly competition is fierce collusion at the extensive margin is always sustainable. Finally, we provide a theoretic foundation for the use of a “proportional response” enforcement mechanism.     

Vertical integration and downstream collusion

We investigate the effect of a vertical merger on downstream firms’ ability to collude in a repeated game framework. We show that a vertical merger has two main effects. On the one hand, it increases the total collusive profits, increasing the stakes of collusion. On the other hand, it creates an asymmetry between the integrated firm and the unintegrated competitors. The integrated firm, accessing the input at marginal cost, faces higher profits in the deviation phase and in the non-cooperative equilibrium, which potentially harms collusion. As we show, the optimal collusive profit-sharing agreement takes care of the increased incentive to deviate of the integrated firm, while optimal punishment erases the difficulty related to the asymmetries in the non-cooperative state. As a result, vertical integration generally favors collusion.     

On Antitrust Enforcement and the Deterrence of Collusive Behaviour

This paper examines an antitrust enforcement policy of using significant price changes in an industry as a sorting mechanism for the allocation of resources devoted to policing collusion. That is, in either responding to complaints or initiating investigations on their own, I examine the issue of whether an antitrust enforcement policy of inferring possible collusion from significant prices changes is effective in deterring collusion given that antitrust officials have no direct knowledge of the costs of individual firms. Using the imperfect information repeated game of Green and Porter (1984), I show that this investigation strategy if coupled with uniform costs being borne by firms, can reduce the expected profits from the collusive agreement: however, unless the punishment is large enough, it will be ineffective in reducing the frequency of collusion. More importantly, it can have the undesirable effect of reducing the output agreed to by firms, if firms choose quantities, or raise collusive prices if firms are choosing price. Moreover, if the enforcement policy is anticipated by firms, the punishment mechanism adopted to support collusion will be altered to offset the policy.     

Collusion between two-sided platforms

We study the price and welfare effects of collusion between two-sided platforms and show that they depend on whether collusion occurs on both sides or a single side of the market, and whether users single-home or multi-home. Our most striking result is that one-sided collusion leads to lower (resp. higher) prices on the collusive (resp. competitive) side if the cross-group externalities exerted on the collusive side are positive and sufficiently strong. One-sided collusion may, therefore, benefit the users on the collusive side and harm the users on the competitive side. Our findings have implications regarding cartel detection and damages actions.     

Bundling,tying, and collusion

Tying a good produced monopolistically with a complementary good produced in an oligopolistic market in which there is room for collusion can be profitable if some buyers of the oligopoly good have no demand for the monopoly good. The reason is that a tie makes part of the demand in the oligopolistic market out of the reach of the tying firm's rivals, which decreases the profitability of deviating from a collusive agreement. Tying may thus facilitate collusion. It may also allow the tying firm to alter market share allocation in a collusive oligopolistic market.     

ALTERNATING MONOPOLY AND TACIT COLLUSION*

This paper considers the use of the alternating monopoly strategy (AMS) as a (tacit) collusion device. We show that firms may choose this strategy in particular environments, when other collusive strategies are also feasible. In particular, we stress how the presence of an observable move (entry), distinct from the competitive stage (price setting), can serve as a coordination device, reducing monitoring costs in incomplete information environments. The paper thus shows that AMS may be preferable to the classic market sharing strategy (MSS) and in some cases it is the only collusive equilibrium.     

OUTPUT‐EXPANDING COLLUSION IN THE PRESENCE OF A COMPETITIVE FRINGE*

Following the structure of many commodity markets, we consider a few large firms and a competitive fringe of many small suppliers choosing quantities in an infinite‐horizon setting subject to demand shocks. We show that a collusive agreement among the large firms may not only bring an output contraction but also an output expansion (relative to the non‐collusive output level). The latter occurs during booms and is due to the strategic substitutability of quantities. We also find that the time at which maximal collusion is most difficult to sustain can be either at booms or recessions. The international copper cartel of 1935–39 is used to illustrate some of our results.     

Mergers and coordinated effects

A merger is said to have coordinated effects if it results in more collusive outcomes. I review the theory of collusion, and the role played by communication in coordination. Mergers can affect the enforcement and participation constraints for a collusive agreement, and the selection from the equilibrium set of outcomes. I describe some recent empirical studies of the effects of mergers on collusion, and the underlying measurement issues associated with identifying the degree of coordination. I also discuss some recent cases in which coordinated effects were a concern, including both merger reviews and ex post investigations.     

从经济学视角看电力监管合谋

从经济学的视角,运用委托一代理理论、扩展的“经济人”假设以及信息不对称理论对电力监管合谋行为及其成因进行了系统描述。论证表明,电力监管合谋有可能存在于电力行业的发电、输配电以及市场交易各环节,监管者作为扩展意义上的“经济人”,有可能与企业形成合谋联盟;而信息不对称的存在则为合谋这种违规行为创造了实现的机会。     

Detecting Collusion

Detection and deterrence of collusion are longstanding antitrust problems, made difficult because collusive arrangements are usually surreptitious. In this paper, I discuss factors that facilitate or inhibit collusive schemes, as well as circumstances where detection is possible. I describe how industrial organization economists diagnose collusion (both explicit and tacit) among firms.     

Collective exclusion

This paper studies collusion among vertically integrated incumbents who may either delegate output production to a more efficient downstream entrant (“accommodating regime”) or refuse to supply the entrant and produce the final good themselves (“exclusionary regime”). Accommodating agreements yield higher collusive profits, but suffer from contractual frictions: An incumbent may first offer the entrant a high wholesale price for the input, and then undercut the entrant on the final good market, so that the entrant cannot recover its high input costs downstream. When the efficiency gap between the incumbents and the entrant is small, this hold-up effect dominates over the efficiency effect. Depending on modeling choices, exclusionary collusion is then either more profitable than accommodation, or is the only sustainable collusive regime.     

Horizontal mergers and collusive behavior

In the Industrial Organization literature, it is generally felt that mergers hurt consumers; not only because of the increased industrial concentration they effect, but also because collusion becomes more likely. In this paper we show that, at least in one important case, this intuition is misguided. If a tacitly collusive agreement enforced by trigger strategies is not initially sustainable, mergers will tend to reduce the chance that it becomes sustainable in the future. This is so because the threat point implicit in the agreement becomes more favorable for outsiders.     

Competitive pricing decisions in a two-echelon supply chain with horizontal and vertical competition

This study investigates the pricing decisions in a non-cooperative supply chain that consists of two retailers and one common supplier. The retailers order from the common supplier and compete in the same market. We analyze six power structures that characterize exclusively horizontal competition between the retailers and vertical competition between the supplier and the retailers, leading to different sequences of moves among the chain members. We derive the analytical forms of the equilibrium quantities under each power structure and explore the effect of retail substitutability on the equilibrium quantities among all power structures. We further investigate the performances of the game models as compared with the integrated model.     

Fighting collusion in auctions: An experimental investigation

The danger of collusion presents a serious challenge for auctioneers. In this paper, we compare the collusive properties of two standard auctions, the English auction and the first-price sealed-bid auction, and a lesser-known format, the Amsterdam (second-price) auction. In the Amsterdam auction, the highest losing bidder earns a premium for stirring up the price. We study two settings: in one, all bidders can collude, and in another, only a subset is eligible. The experiments show that the Amsterdam auction triggers less collusion than the standard auctions. We compare experimental results to theoretical predictions, and provide an explanation where they differ.     

Collaboration,Co‐operation or Collusion? Contrasting Employee Responses to Managerial Control in Three Call Centres

This article draws on ethnographic studies of three call centres in a single, medium‐sized insurance company to explore how employees responded differently to similar techniques of managerial control. Considering recent discussions of compromise in the workplace, we identify a response to control that sits between implacable resistance and supine acquiescence. We style this collusion and distinguish it from other states of compromise, such as collaboration and co‐operation. Drawing on the work of Edwards et al., we argue that a dynamic and politically sophisticated collusive compromise can exist between parties whose control and developmental concerns are in conflict. From this position, we extend existing theories of compromise: (a) to accommodate different permutations of control and developmental concerns; and (b) to predict when collaboration, co‐operation and collusion are likely to occur under ostensibly similar conditions of managerial control.     

Domestic concentration,foreign trade and economic performance

In a competitive fringe model the impact of concentration on price-cost margins can be shown to be ambiguous. Therefore, looking at the relationship between rates of return and concentration ratios is not sufficient for perceiving collusive elements. In this paper a model is set up that permits discerning collusion more clearly. Additional evidence concerning collusion can be gained by analyzing the influence of exports and imports on price-cost margins. Applying this approach to West Germany yields the result that the collusiveness prevailing in domestic markets has not visibly decreased in spite of a substantial increase in foreign trade.     

USING RESERVE PRICES TO DETER COLLUSION IN PROCUREMENT COMPETITION*

To enhance our understanding of collusion in procurement settings, this paper quantitatively evaluates how the buyer's choice of a reserve price influences the sustainability of two previously devised collusive schemes. If the buyer does not select its reserve price strategically, then collusion may be sustainable for a wide range of plausible discount factors. However, even mildly sophisticated reserve price selection can dramatically shrink the set of discount factors for which collusion is sustainable. These findings support existing arguments that buyers are vulnerable to collusion, but they also suggest that buyers possess tools that may profitably induce sellers to act competitively.     

Multi-market contact and competition: evidence from the Depression-era portland cement industry

Theoretical work has suggested that contact between firms in different markets can facilitate tacit collusion. Empirical work on this link has been limited. We address the paucity of empirical evidence with a novel plant-level dataset for the cement industry during the Great Depression. We find that multi-market contact fosters tacit collusion and higher prices based on a new measure of contact that accounts for capacity utilization. A one standard deviation increase in our measure of contact increases prices by around 4.3%. We then examine the effect of the National Industrial Recovery Act's “Codes of Fair Conduct,” introduced in 1933 to stem deflation through cooperative behavior within industries. We find that the effects of the codes were most strongly felt in markets with the highest level of multi-market contact. This suggests that multi-market contact can be a useful ‘tool’ for firms to support collusive outcomes, tacit or otherwise.     

The Value of Collusion with Endogenous Capacity and Demand Uncertainty

Collusion has often been alleged in industries where long‐lived capacity investments are important. This article develops a computational duopoly model with capacity investments, demand shocks and either competitive or collusive pricing. It shows that allowing for endogenous capacity investments can sometimes make collusion less valuable than competition and that it can change the normal relationships between the profitability of collusion and both the discount rate and industry‐wide demand shocks.