Collusion between asymmetric firms under complete and incomplete information Dr. Banerjee Dibyendu Assistant Professor, Department of Economics, Serampore College, Hooghly, India. dib_banerjee123@yahoo.com Online published on 22 June, 2017. Abstract The paper considers the scope of collusion between two firms in a duopoly market. The firms differ in terms of their marginal cost of production. In presence of complete information it is observed that the high cost firm always has an incentive to collude. The low cost firm has the incentive to collude only for lower degree of cost asymmetry. Asymmetric information is introduced by allowing a cartel designer whose objective is to design an efficient cartel mechanism. She knows that there is cost asymmetry between the firms but cannot distinguish between the two types. In such situation it is observed that the mechanism designed by her can enforce the socially efficient outcome only for higher degree of cost asymmetry. Top Keywords Incomplete information, collusion, Cost Asymmetry, Cartel formation. Top |
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