Endogenous Monitoring in a Partnership Game
AbstractI consider a repeated game in which, due to imperfect monitoring, no collusion can be sustained. I add a self-interested monitor who commits to obtain private signals of firms' actions and sends a public message. The monitor makes an offer specifying the precision of the signals obtained and the amount to be paid in return. First, with a low monitoring cost, collusive equilibria exist. Second, collusive equilibria are monitor-preferred. Third, in monitor-preferred equilibria, firms' payoffs are decreasing in the discount factor. My model helps explain cartel agreements between self-interested parties and firms in legal industries in the United States and Europe.
CitationSanktjohanser, Anna. 2020. "Endogenous Monitoring in a Partnership Game." American Economic Review, 110 (3): 776-96. DOI: 10.1257/aer.20161491
- C73 Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D82 Asymmetric and Private Information; Mechanism Design
- L12 Monopoly; Monopolization Strategies