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

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

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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.

Item Type: Article
Language: English
Date: December 2018
Refereed: Yes
Uncontrolled Keywords: Repeated Game, Tacit Collusion, Optimal Punishments, Cost Asymmetry, Outsider
JEL Classification: C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
D43 - Oligopoly and Other Forms of Market Imperfection
L13 - Oligopoly and Other Imperfect Markets
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 23 May 2018 06:25
Last Modified: 24 Jul 2019 09:19
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