Article

On the Difficulty of Collusion in the Presence of a More Efficient Outsider

Guillaume Cheikbossian, and Philippe Mahenc

Abstract

We study the ability of several identical firms to collude in the presence of a more efficient firm, which does not take part in their collusive agreement. The cartel firms adopt stick-and-carrot strategies, while the efficient firm plays its one-period best-response function, regardless of the history of play. We characterize the most collusive symmetric punishment, which maximizes the scope for collusion. We then find that either a lower cost disadvantage or a smaller cartel size facilitates collusion. Finally, we compare our results with those obtained in the standard setup where all firms participate in the collusive agreement.

Keywords

Repeated Game; Tacit Collusion; Optimal Punishments; Cost Asymmetry; Outsider;

JEL codes

  • C73: Stochastic and Dynamic Games • Evolutionary Games • Repeated Games
  • D43: Oligopoly and Other Forms of Market Imperfection
  • L13: Oligopoly and Other Imperfect Markets

Replaces

Guillaume Cheikbossian, and Philippe Mahenc, Cooperation in the Presence of an Advantaged Outsider, TSE Working Paper, n. 13-390, August 2012.

Reference

Guillaume Cheikbossian, and Philippe Mahenc, On the Difficulty of Collusion in the Presence of a More Efficient Outsider, Journal of Institutional and Theoretical Economics, vol. 174, n. 4, December 2018, pp. 595–628.

Published in

Journal of Institutional and Theoretical Economics, vol. 174, n. 4, December 2018, pp. 595–628