Collusion with Limited Product Comparability

Abstract

We adapt the framework of Spiegler (2016) to examine the effect of limited product comparability on the viability of collusion. Firms choose messages to influence the propensity of consumers to compare products. The cartel hinders transparency on the equilibrium path, and seeks it for optimal punishment. We provide five conditions, each sufficient to ensure obfuscation aids collusion: if firms can mix over messages or commit to messages, if messages are informative, or if an individual firm or the cartel as a whole can control comparability. We also analyse the impact of message differentiation and complexity for optimal messages, and identify a key role for the convexity or concavity of comparison probabilities in these features.

Keywords: Collusion, frame competition, obfuscation

JEL Classification: L13, D83