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Collusion Under Asymmetric Information: The Role of the Correlation
Author(s) -
Pouyet Jérôme
Publication year - 2002
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/1097-3923.00109
Subject(s) - collusion , incentive , microeconomics , economics , exploit , regulator , dominance (genetics) , duopoly , positive correlation , divergence (linguistics) , negative correlation , computer science , cournot competition , medicine , biochemistry , chemistry , linguistics , philosophy , computer security , gene
We consider the regulation of a duopoly under incomplete information. When firms act noncooperatively, the regulator uses yardstick mechanisms to bridge his informational gap at no cost. However, this provides the firms with an incentive to collude. We interpret the correlation as a measure of the congruence/divergence between individual and coalitional incentives. Under positive correlation, these incentives are aligned: the threat of collusion forces the regulator to distort the allocation. Under negative correlation, these incentives are opposed: the regulator can, sometimes, exploit this conflict of interest inside the coalition to eradicate the stakes of collusion at no cost.