Information exchange in cartels. (26th May 2020)

• Record Type: Journal Article
• Authors: Awaya, Yu; Krishna, Vijay
• Is Part Of: Rand journal of economics. Volume 51:Number 2(2020)
• Page Start: 421
• Page End: 446
• Publication Date: 2020-05-26
• Subjects: Industrial organization (Economic theory) -- Periodicals; Microeconomics -- Periodicals; Services publics -- Périodiques; Économie industrielle -- Périodiques; Microéconomie -- Périodiques; 338.6
• DOI: 10.1111/1756-2171.12320
• Languages: English
• ISSNs: 0741-6261

Abstract

Abstract: Antitrust authorities view the exchange of information among firms regarding costs, prices, or sales as anticompetitive. Such exchanges allow competitors to closely monitor each other, thereby facilitating collusion. But the exchange of aggregate information, perhaps via a third party, is legal. The logic is that collusion is difficult if the identity of a price‐cutting firm cannot be ascertained. Here, we examine this logic using Stigler's model of secret price cuts. We first identify circumstances such that when no information exchange is possible, collusion is difficult. We then show that if firms' aggregate sales are made public, nearly perfect collusion is possible.