Cartel formation and managerial incentives

• Autores: Norma Olaizola Ortega
• Localización: Spanish economic review, ISSN 1435-5469, Vol. 9, Nº 3, 2007, págs. 219-236
• Idioma: inglés
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• Resumen

  • We study the formation of cartels within two different contexts. First, we consider internal–external stability based models which, due to firms’ free-riding incentives, lead to the inexistence of stable cartels. Second, we introduce the dynamic aspect of coalition formation. That is, when considering a cartel we consider also any cartel that can be reached through a succession of moves. Despite firms’ free-riding incentive, the dynamic process predicts that the collusion of the whole industry can occur with some regularity. We show that free-riding incentives decrease and incentives to merge increase when firms’ owner delegate production decisions to managers.