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.
Repeated Game; Tacit Collusion; Optimal Punishments; Cost Asymmetry; Outsider;
- C73: Stochastic and Dynamic Games • Evolutionary Games • Repeated Games
- D43: Oligopoly and Other Forms of Market Imperfection
- L13: Oligopoly and Other Imperfect Markets
Guillaume Cheikbossian et Philippe Mahenc, « Cooperation in the Presence of an Advantaged Outsider », TSE Working Paper, n° 13-390, août 2012.
Guillaume Cheikbossian et 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, décembre 2018, p. 595–628.
Journal of Institutional and Theoretical Economics, vol. 174, n° 4, décembre 2018, p. 595–628