Price Cutting and Business Stealing in Imperfect Cartels

61 Pages Posted: 24 Mar 2014

See all articles by B. Douglas Bernheim

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Erik Kloppenborg Madsen

Aarhus University - Department of Business Administration

Date Written: March 2014

Abstract

Though economists have made substantial progress toward formulating theories of collusion in industrial cartels that account for a variety of fact patterns, important puzzles remain. Standard models of repeated interaction formalize the observation that cartels keep participants in line through the threat of punishment, but they fail to explain two important factual observations: first, apparently deliberate cheating actually occurs; second, it frequently goes unpunished even when it is detected. We propose a theory of "equilibrium price cutting and business stealing" in cartels to bridge this gap between theory and observation.

Suggested Citation

Bernheim, B. Douglas and Madsen, Erik Kloppenborg, Price Cutting and Business Stealing in Imperfect Cartels (March 2014). NBER Working Paper No. w19993. Available at SSRN: https://ssrn.com/abstract=2413341

B. Douglas Bernheim (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-8732 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Erik Kloppenborg Madsen

Aarhus University - Department of Business Administration ( email )

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