Non-cooperative Bargaining and Collusion Formation Through Communication Networks 

Abstract

Many real-world organizations face the threat of internal collusion, where a fraction of members conspire to exploit regulatory loopholes or abuse their power for personal gain. In contrast to existing literature, this paper considers the case that colluding members may provide cover for each other, evading punishment even if non-colluding members report their activities. 

The collusion formation process is modeled as a bargaining process through a personal connection or friendship network, as corruption attempts are not made public. The analysis reveals that collusion is less likely to occur in networks with sparser connections. In particular, star and ring networks present the greatest challenges for collusion. For arbitrary communication networks, an algorithm is developed to identify the potential for collusion among individual players, enabling policymakers to enhance detection and control of corruption.

This research contributes valuable insights into the fields of anti-corruption, anti-trust, firm management, political bargaining, social movements, and revolutions. It is particularly relevant in cases where principals struggle to impose punishment following successful collusion.

Keywords: Collusion, Communication, Network, Bargaining JEL codes: C7, D4, D7

JEL Classification: C7, D4, D7