Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices

Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices

By
Joseph E. Harrington, Jr., Andrzej Skrzypacz
American Economic Review. October
2011, Vol. 101, Issue 6, Pages 2425–2449

Motivated by recent cartel practices, a stable collusive agreement is characterized when firms’ prices and quantities are private information. Conditions are derived whereby an equilibrium exists in which firms truthfully report their sales and then make transfers within the cartel based on these reports. The properties of this equilibrium fit well with the cartel agreements in a number of markets including citric acid, lysine, and vitamins.