Noncooperative Collusion Under Imperfect Price Information

Abstract

Recent work in game theory has shown that, in principle, it may be possible for firms in an industry to form a self-policing cartel to maximize their joint profits. This paper studies the applicability of that work to empirical industrial organization. A parametric model of a noncooperatively supported cartel is presented, and the aspects of industry structure which would make such a cartel viable are discussed. The model is shown to be estimable my means of a multiple-equation switching-regression technique. Thus it may be possible to subject a particular industry to a direct test of collusive conduct. Such a test would complement the reduced-form cross-industry regressions by which hypotheses about collusion (in particular, Stigler's theory of oligopoly) have previously been tested.