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Optimal collusion with internal contracting

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  • Lee, Gea M.

Abstract

In this paper, two firms play an infinitely-repeated Bertrand game, and each firm has an agent who produces the firm's output and holds private information about production costs. The colluding firms fix prices and allocate market shares based on their agents' information. We develop a model of collusion in which firms use the presence of agents as a strategic opportunity to restrict their incentives to distort private information. We show that such firm behavior may expand the scope of optimal collusion whether market-allocation schemes are asymmetric or symmetric.

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  • Lee, Gea M., 2010. "Optimal collusion with internal contracting," Games and Economic Behavior, Elsevier, vol. 68(2), pages 646-669, March.
    • Handle: RePEc:eee:gamebe:v:68:y:2010:i:2:p:646-669
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    2. Fabian Herweg & Antonio Rosato, 2020. "Bait and ditch: Consumer naïveté and salesforce incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 97-121, January.

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    More about this item

    Keywords

    Price-fixing collusion Private information Internal contract Information distortion;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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