Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249047 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2118
Publisher: 
Johannes Kepler University of Linz, Department of Economics, Linz
Abstract: 
In a market with two exclusive manufacturer-retailer pairs, we show that colluding manufacturers may not be able to attain supra-competitive profits when contracts with retailers are secret. The stability of manufacturer collusion depends on the retailers' beliefs. We consider various dynamic beliefs and find that industry-profit-maximizing collusion is feasible for some. Collusion is even renegotiation-proof under trigger beliefs if a novel condition of opportunism-proofness holds, which can be more demanding than the standard stability condition. Trigger beliefs are not flexible enough to allow for formation of collusion. We demonstrate that adaptive beliefs may be necessary for the formation of manufacturer collusion in a non-collusive industry.
Subjects: 
opportunism
credible punishment
cartel formation
manufacturer collusion
vertical relations
renegotiation-proof
secret contracting
JEL: 
L41
L42
L81
Document Type: 
Working Paper

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