Maintaining Privacy in Cartels

Abstract

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 marketsegmentation strategy.

Cheap Talk, Monitoring and Collusion

“…Therefore, communication through a third party that collects firms' own-sales reports and communicates to all firms total sales data based on these reports would be sufficient for Proposition 2 to hold. 32 At least three firms. With more than three firms, if a firm sets a price above consumers' valuation V in a 'normal collusion' period, the ensuing sales distribution is incompatible with any equilibrium path if demand is neither zero nor biased since all firms but one sell nonzero amounts, and there is no way for a firm to conceal such a deviation (it could not report the same sales as other firms because it would not know them), so that a price war would ensue.…”

“…Our results would not hold if interfirm payments were possible. In that case, a sales imbalance in period 1 could trigger compen- 32 This remark is at odds with the oft-made claim that "aggregating the data [on firms' historical and current prices, costs, and output] largely removes the value of information in facilitating collusion" (Carlton, Gertner and Rosenfield, 1997). Awaya and Krishna (2020) present another mechanism through which the communication of credible aggregate sales data to individual firms can facilitate collusion.…”

Collusion by Algorithm: Does Better Demand Prediction Facilitate Coordination Between Sellers?

“…First, the broader point that better information can sometimes hurt cooperation has also been made in a number of recent papers in the economics literature, albeit in different contexts. In a model of collusion where the cartel members divide the market between themselves, Sugaya and Wolitzky (2018) argue that better information about past behavior in another firm's market may allow a firm to better predict future demand conditions in that market, which in turns helps the firm to tailor deviations -in which it deviates by entering its rival's market -to demand conditions. And Hochman and Segev (2010) show that better information about current demand conditions can reduce welfare in a model of self-enforcing international trade agreements.…”

Collusion and Information Exchange

“…Sahuguet and Walckiers () consider hub‐and‐spoke collusion. Sugaya and Wolitzky () show that firms can achieve higher profits by coarsening information on past sales data. Spector () studies the effect of individualised sales data assuming the data are partially verifiable: actual data will be publicly announced with delay.…”