Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 674: COLLUSION-PROOF YARDSTICK COMPETITION

Thomas P. TangerĂ¥s ()
Additional contact information
Thomas P. TangerĂ¥s: The Research Institute of Industrial Economics, IUI, Postal: Industriens Utredningsinstitut, Box 5501, SE-11485 Stockholm, Sweden

Abstract: This paper analyses the incentives for collusion when an industry is regulated by means of yardstick competition. The central assumption is that firms must write collusive side contracts before the revelation of private information and are unable to communicate later. It is shown that optimal collusion-proof regulation demands more high-powered (low-powered) incentives to high-productivity (low-productivity) firms than prescribed by the second-best contract. Collusion is costly to society also when correlation of private information is near perfect. This contrasts with the result by Laffont and Martimort (1998b), that the cost of collusion vanishes in the limit.

Keywords: Yardstick competition; collusion; regulation

JEL-codes: L51

39 pages, November 12, 1999

Full text files

FULLTEXT01  

Download statistics

Questions (including download problems) about the papers in this series should be directed to Hanna Christiansson ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-01-23 23:33:57.