Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices*

Motivated by recent cartel practices, a stable collusive agreement is characterized when firms' prices and quantities are private information. Conditions are derived whereby an equilibrium exists in which firms truthfully report their sales and then make transfers within the cartel based on these reports. The properties of this equilibrium fit well with the cartel agreements in a number of markets including citric acid, lysine, and vitamins. (JEL D43, D82, K21, L12, L61, L65)

[1]  W. MacLeod,et al.  On Optimal Contracting with Subjective Evaluation , 2001 .

[2]  Masaki Aoyagi,et al.  Collusion in Dynamic Bertrand Oligopoly with Correlated Private Signals and Communication , 2002, J. Econ. Theory.

[3]  David M. Kreps,et al.  Relational Incentive Contracts , 2003 .

[4]  David Pearce,et al.  Information and timing in repeated partnerships , 1991 .

[5]  Robert Clark,et al.  Collusion with Asymmetric Retailers: Evidence from a Gasoline Price-Fixing Case , 2013 .

[6]  Margaret C. Levenstein,et al.  CONTEMPORARY INTERNATIONAL CARTELS AND DEVELOPING COUNTRIES: ECONOMIC EFFECTS AND IMPLICATIONS FOR COMPETITION POLICY , 2003 .

[7]  D. Graham,et al.  Collusive Bidder Behavior at Single-Object Second-Price and English Auctions , 1987, Journal of Political Economy.

[8]  William Fuchs,et al.  Contracting with Repeated Moral Hazard and Private Evaluations , 2006 .

[9]  Explicit Collusion and Market Share Allocations , 2008 .

[10]  G. Mailath,et al.  Repeated Games and Reputations , 2006 .

[11]  John M. Connor,et al.  Global Price Fixing: Our Customers are the Enemy , 2001 .

[12]  Ichiro Obara,et al.  Folk theorem with communication , 2009, J. Econ. Theory.

[13]  Alfred Plummer.  International combines in modern industry , 1934 .

[14]  R. Porter,et al.  NONCOOPERATIVE COLLUSION UNDER IMPERFECT PRICE INFORMATION , 1984 .

[15]  Collusion under Monitoring of Sales , 2007 .

[16]  Olivier Compte.  Communication in repeated games with imperfect private monitoring , 1998 .

[17]  Margaret C. Levenstein,et al.  What Determines Cartel Success? , 2002 .

[18]  S. Athey,et al.  Optimal Collusion with Private Information , 1999 .

[19]  Johannes Hörner,et al.  The folk theorem for games with private almost-perfect monitoring , 2005 .

[20]  Joseph E. Harrington,et al.  How Do Cartels Operate? , 2006, Found. Trends Microeconomics.

[21]  Bingyong Zheng,et al.  Approximate efficiency in repeated games with correlated private signals , 2008, Games Econ. Behav..

[22]  Michihiro Kandori,et al.  Introduction to Repeated Games with Private Monitoring , 2002, J. Econ. Theory.

[23]  Michihiro Kandori,et al.  Private Observation, Communication and Collusion , 1998 .

[24]  G. Stigler.  A Theory of Oligopoly , 1964, Journal of Political Economy.

[25]  G. Mailath,et al.  Repeated Games and Reputations: Long-Run Relationships , 2006 .

[26]  Jonathan Levin.  Relational Incentive Contracts , 2003 .

[27]  R Ash,et al.  The power of communication! , 1998, Journal of dental technology : the peer-reviewed publication of the National Association of Dental Laboratories.

[28]  S. Athey,et al.  Collusion With Persistent Cost Shocks , 2008 .