Optimal Collusion with Private Information

By Susan Athey, K. Bagwell. 2001

438 citations recorded by the source corpus.

We analyze collusion in an infinitely repeated Bertrand game, where prices are publicly observed and each firm receives a privately observed, i.i.d. cost shock in each period. Productive efficiency is possible only if high-cost firms relinquish market share. In the most profitable collusive schemes, firms implement productive efficiency, and high-cost firms are favored with higher expected market share in future periods. If types are discrete, there exists a discount factor strictly less than one above which first-best profits can be attained using history-dependent reallocation of market share between equally efficient firms. We also analyze the role of communication and side-payments.

Subfields: Accounting, Management Science and Operations Research, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/295f634b52b5578b68edbc862ff0978f589b2c68

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Citations in the corpus

Is the WTO Passé (2015, neutral): “See Athey and Bagwell (2001) and Fudenberg, Levine and Maskin (1994).”
Games with Imperfectly Observable Actions in Continuous Time (2007, methodology): “which proves that r(W i t (A) gi(At)) is the drift of W i t (A); so i in representation ( 4 ) must”
The impact of leniency and whistle-blowing programs on cartels (2006, background): “35 This argument has been formally explored by Athey and Bagwell (2001) in the case of asymmetric information on costs.”
Impossibility of Collusion under Imperfect Monitoring with Flexible Production (2007, background): “1 There are many papers describing explicit and tacit collusion among firms; for comprehensive studies see for example Hay and Kelley (1974) or Levenstein and Suslow (2004).”
Cartel Pricing Dynamics in the Presence of an Antitrust Authority (2004, background): “26 For very different reasons, McCutcheon (1997), Fershtman and Pakes (2000), and Athey and Bagwell (2001) identify some perverse effects of antitrust law with respect to price fixing.”
Collusion With Persistent Cost Shocks (2008, methodology): “See, e.g., Connor's (2001, p. 17) discussion of the lysine cartel.”
Building Routines: Learning, Cooperation, and the Dynamics of Incomplete Relational Contracts (2010, methodology): “The particular nature of the informational asymmetry bears much resemblance to the models of Athey and Bagwell (2001), Levin (2003) and Athey, Bagwell and Sanchirico (2004) who also consider situations in which actions are observable but the players' costs for those actions are private.”
Explicit vs. Tacit Collusion – The Impact of Communication in Oligopoly Experiments (2012, neutral): “As the number of firms in the market increases, the minimum discount factor required for collusion to be successful also rises.(4) Note that the formalization of the conventional wisdom as summarized in (1) has been applied to both tacit collusion (e.”
Belief-Free Equilibria in Games With Incomplete Information (2007, positive): “For instance, Athey and Bagwell (2001) and Athey, Bagwell, and Sanchirico (2004) characterized the (perfect public) equilibrium payoffs of a repeated game between price-setting oligopolists whose marginal cost in each period is private information.”