English, Article, Journal or magazine article edition: Optimal Collusion with Limited Severity Constraint Etienne Billette de Villemeur; Laurent Flochel; Bruno Versaevel

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Optimal Collusion with Limited Severity Constraint
Author
  • Etienne Billette de Villemeur
  • Laurent Flochel
  • Bruno Versaevel
Physical Description
  • preprint
Notes
  • Collusion sustainability depends on firms' aptitude to impose sufficiently severe punishments in case of deviation from the collusive rule. We characterize the ability of oligopolistic firms to implement a collusive strategy when their ability to punish deviations over one or several periods is limited by a severity constraint. It captures all situations in which either structural conditions (the form of payoff functions), institutional circumstances (a regulation), or financial considerations (profitability requirements) set a lower bound to firms' losses. The model specifications encompass the structural assumptions (A1-A3) in Abreu (1986) [Journal of Economic Theory, 39, 191-225]. The optimal punishment scheme is characterized, and the expression of the lowest discount factor for which collusion can be sustained is computed, that both depend on the status of the severity constraint. This extends received results from the literature to a large class of models that include a severity constraint, and uncovers the role of structural parameters that facilitate collusion by relaxing the constraint.
  • RePEc:hal:journl:halshs-00375798_v1
  • Collusion sustainability depends on ï¬rms' aptitude to impose suffciently severe punishments in case of deviation from the collusive rule. We characterize the ability of oligopolistic ï¬rms to implement a collusive strategy when their ability to punish deviations over one or several periods is limited by a severity constraint. It captures all situations in which either structural conditions (the form of payoff functions), institutional circumstances (a regulation), or ï¬nancial consider- ations (proï¬tability requirements) set a lower bound to ï¬rms' losses. The model speciï¬cations encompass the structural assumptions (A1-A3) in Abreu (1986) [Journal of Economic Theory, 39, 191-225]. The optimal punishment scheme is characterized, and the expression of the lowest discount factor for which collusion can be sustained is computed, that both depend on the status of the severity constraint. This extends received results from the literature to a large class of models that include a severity constraint, and uncovers the role of structural parameters that facilitate collusion by relaxing the constraint.
  • Collusion, Oligopoly, Penal codes
  • RePEc:gat:wpaper:0909
Language
  • English
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