Tacit Collusion and Voluntary Disclosure: Theory and Evidence from the U.S. Automotive Industry

26 Pages Posted: 5 Jun 2015

See all articles by Jeremy Bertomeu

Jeremy Bertomeu

Washington University in St. Louis - John M. Olin Business School

John Evans

University of Pittsburgh - Katz Graduate School of Business

Mei Feng

University of Pittsburgh - Katz Graduate School of Business

Ayung Tseng

Georgetown University - Department of Accounting and Business Law; Indiana University

Date Written: June 1, 2015

Abstract

This study examines how industry peers share information when they are engaged in tacit collusion. We develop a model of firms' information sharing and production decisions and use it to establish that firms engaged in tacit collusion are more likely to share information when current market demand is low and when the firms' decision horizon is long. Using 31 years of monthly production forecast data shared among the Big Three U.S. automobile manufacturers, we find empirical evidence that is generally consistent with the predictions of the model. The frequency, horizon and accuracy of the shared production forecasts decrease when the expected demand increases, suggesting less information sharing when firms have greater incentives to compete aggressively to capture greater current demand rather than to tacitly agree to restrict production. The production forecast frequency and horizon also decrease when the firms focus more on short-term profit, consistent with less information sharing when firms place less weight on the future benefit from tacit collusion.

Keywords: collusion, disclosure, information sharing, antitrust, oligopoly

JEL Classification: L13, L15, L40, L62, M41

Suggested Citation

Bertomeu, Jeremy and Evans, John Harry and Feng, Mei and Tseng, Ayung, Tacit Collusion and Voluntary Disclosure: Theory and Evidence from the U.S. Automotive Industry (June 1, 2015). Available at SSRN: https://ssrn.com/abstract=2613970 or http://dx.doi.org/10.2139/ssrn.2613970

Jeremy Bertomeu (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

John Harry Evans

University of Pittsburgh - Katz Graduate School of Business ( email )

230 Mervis Hall
Pittsburgh, PA 15260
United States

Mei Feng

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Ayung Tseng

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Indiana University ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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