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Colluding with a conscience

Author

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  • Rudy Santore
  • Youping Li
  • Stephen Cotten

Abstract

Other-regarding preferences have been documented in many strategic settings. We provide a model in which the managers of firms in an oligopoly have preferences for both consumer welfare and own income. We find that profit sharing can function as a facilitating practice. Managers must receive a sufficiently large share of profits for collusion to be sustained, and the optimal collusive price increases with the degree of profit sharing. Thus, restrictions on performance-based compensation may be consistent with the objectives of antitrust policy. We also find that an increase in industry concentration can harm consumers even if the firms were already successfully colluding. Copyright Springer-Verlag Wien 2015

Suggested Citation

  • Rudy Santore & Youping Li & Stephen Cotten, 2015. "Colluding with a conscience," Journal of Economics, Springer, vol. 114(3), pages 255-269, April.
    • Handle: RePEc:kap:jeczfn:v:114:y:2015:i:3:p:255-269
    DOI: 10.1007/s00712-014-0390-8
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    More about this item

    Keywords

    Collusion; Antitrust policy; Behavioral economics ; Incentive compensation; D43; K21; L13;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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