Maintaining Privacy in Cartels

Maintaining Privacy in Cartels

By
Takuo Sugaya, Alexander Wolitzky
Journal of Political Economy. December
2018, Vol. 126, Issue 6, Pages 2569-2607

It is conventional wisdom that transparency in cartels—monitoring of competitors’ prices, sales, and profits—facilitates collusion. However, in several recent cases cartels have instead worked to preserve the privacy of their participants’ actions and outcomes. Toward explaining this behavior, we show that cartels can sometimes sustain higher profits when actions and outcomes are observed only privately, because better information can hinder collusion by helping firms devise more profitable deviations from the collusive agreement. We provide conditions under which maintaining privacy is optimal for cartels that follow a market-segmentation strategy.