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Impossibility of market division with two-sided private information about production costs

Author

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  • Joao Correia-da-Silva

    (CEF.UP and Universidade do Porto)

Abstract

In a market with several independent cities, two firms with private information about their production costs decide whether to open a store in each city or restrict their activity to some cities. In cities where a single rm opens a store, this firm is a monopolist. In cities where both firms open stores, there is price competition with full revelation of private information. In equilibrium, both firms open stores in all the cities. Tacit collusion to divide the market is impeded because, by restraining from opening additional stores, a firm reveals its inefficiency, which triggers an attack from its rival.

Suggested Citation

  • Joao Correia-da-Silva, 2013. "Impossibility of market division with two-sided private information about production costs," FEP Working Papers 490, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:490
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    File URL: http://www.fep.up.pt/investigacao/workingpapers/wp490.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Collusion; Market division; Two-sided private information; Adverse selection; Compromise game.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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