Collusion in Markets with Imperfect Price Information on Both Sides

TY - UNPB

T1 - Collusion in Markets with Imperfect Price Information on Both Sides

AU - Schultz, Christian

N1 - JEL Classification: L13, L40

PY - 2009

Y1 - 2009

N2 - The paper considers tacit collusion in markets which are not fully transparent on both sides. Consumers only detect prices with some probability before deciding which firm to purchase from, and each firm only detects the other firm's price with some probability. Increasing transparency on the producer side facilitates collusion, while increasing transparency on the consumer side makes collusion more difficult. Conditions are given under which increases in a common factor, affecting transparency positively on both sides, are pro-competitive. With two standard information technologies, this is so, when firms are easier to inform than consumers.

AB - The paper considers tacit collusion in markets which are not fully transparent on both sides. Consumers only detect prices with some probability before deciding which firm to purchase from, and each firm only detects the other firm's price with some probability. Increasing transparency on the producer side facilitates collusion, while increasing transparency on the consumer side makes collusion more difficult. Conditions are given under which increases in a common factor, affecting transparency positively on both sides, are pro-competitive. With two standard information technologies, this is so, when firms are easier to inform than consumers.

KW - Faculty of Social Sciences

KW - transparency

KW - tacit collusion

KW - cartel theory

KW - competition policy

KW - internet

M3 - Working paper

BT - Collusion in Markets with Imperfect Price Information on Both Sides

PB - Centre for Industrial Economics, Department of Economics, University of Copenhagen

ER -