Non-cooperative Bargaining and Collusion Formation Through Communication Networks 

Abstract

Internal collusion risks many real-world organizations. When members conspire to exploit regulatory loopholes or abuse their power for personal gain. This paper considers a case in which colluding members may cover each other's actions, evading punishment even if their actions are reported by non-colluding members. The collusion formation process is modeled as a novel bargaining process through a personal connection network, as corruption attempts are not made public. The analysis reveals that star and ring networks are the most resistant to 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 by focusing on a network's central players. This research contributes valuable insights to the fields of anti-corruption, antitrust, firm management, political bargaining, and social movements. It is particularly relevant to cases where principals struggle to impose punishment following collusion.

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

JEL Classification: C7, D4, D7