Collusive behaviour under cost asymmetries when firms compete in supply functions

This paper investigates the effect of cost heterogeneity in cartel formation and its sustainability over time when firms compete in supply functions under uncertainty. We find that cartel formation and collusion sustainability are hindered as cost differences increase. Efficiency losses caused by collusive behaviour are shown to decrease as asymmetry increases and, therefore, welfare losses also decrease. We compare our results with those obtained under Cournot and Bertrand competition.