Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Tuesday, February 9, 2010

Optimal Collusion with Internal Contracting

Posted by D. Daniel Sokol

Gea M. Lee (Singapore Management University) explains Optimal Collusion with Internal Contracting.

ABSTRACT: In this paper, we develop a model of collusion in which two firms play an infinitelyrepeated Bertrand game when each firm has a privately-informed agent. The colluding firms, fixing prices, allocate market shares based on the agent's information as to cost types. We emphasize that the presence of privately-informed agents may provide firms with a strategic opportunity to exploit an interaction between internal contracting and market-sharing arrangement- the contracts with agents may be used to induce firms' truthful communication in their collusion, and collusive market-share allocation may act to reduce the agents' information rents.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/02/optimal-collusion-with-internal-contracting-.html

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