Optimal collusion under cost asymmetry |
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Authors: | Jeanine Miklós-Thal |
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Institution: | (1) University of Siena, Siena, Italy;(2) University of Milano - Bicocca, Milan, Italy |
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Abstract: | Cost asymmetry is generally thought to hinder collusion because a more efficient firm has both more to gain from deviations
and less to fear from retaliation than less efficient firms. Our paper reexamines this conventional wisdom and characterizes
optimal collusion without any prior restriction on the class of strategies. We stress that firms can credibly agree on retaliation
schemes that maximally punish even the most efficient firm. This implies that whenever collusion is sustainable under cost
symmetry, some collusion is also sustainable under cost asymmetry; efficient collusion, however, remains more difficult to
sustain when costs are asymmetric. Finally, we show that in the presence of side payments cost asymmetry facilitates collusion. |
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