Information Exchange in Cartels

34 Pages Posted: 15 Apr 2019

See all articles by Yu Awaya

Yu Awaya

University of Rochester

Vijay Krishna

Penn State University

Date Written: July 9, 2018

Abstract

Antitrust authorities view the exchange of detailed information among firms regarding costs, prices or sales as being potentially anti-competitive. The reason is that such exchanges may allow competitors to closely monitor each other, thereby facilitating greater coordination. But the exchange of aggregate information, perhaps via a third party like a trade association, is legal. The logic, supported by theory, is that collusion is difficult if the identity of a price cutting firm cannot be ascertained. In this paper, we examine this logic in the framework of Stiglers (1964) model of secret price cuts. We first identify circumstances such that when no information exchange is possible, collusion is very difficult. We then study a situation in which firms' aggregate sales are made public by a third party and show that even this limited information can allow firms to collude --- there are equilibria with profits that are close to those of a monopolist. We also study the incentives of firms to report their sales truthfully to the third party.

Suggested Citation

Awaya, Yu and Krishna, Vijay, Information Exchange in Cartels (July 9, 2018). Available at SSRN: https://ssrn.com/abstract=3212881 or http://dx.doi.org/10.2139/ssrn.3212881

Yu Awaya (Contact Author)

University of Rochester ( email )

280 Hutchison Road
Rochester, NY 14627
United States

Vijay Krishna

Penn State University ( email )

Kern 516
University Park, PA 16802-3306
United States
814-863-8543 (Phone)
814-863-4775 (Fax)

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