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AbstractWe characterize collusion involving secret vertical contracts between retailers and their supplier—who are all equally patient ("vertical collusion"). We show such collusion is easier to sustain than collusion among retailers. Furthermore, vertical collusion can solve the supplier's inability to commit to charging the monopoly wholesale price when retailers are differentiated. The supplier pays retailers slotting allowances as a prize for adhering to the collusive scheme and rejects contract deviations. In the presence of competing suppliers, vertical collusion can be sustained using short‐term exclusive dealing.

We study collusion within groups in non-cooperative games. The primitives are the preferences of the players, their assignment to non-overlapping groups and the goals of the groups. Our notion of collusion is that a group coordinates the play of its members among different incentive compatible plans to best achieve its goals. Unfortunately, equilibria that meet this requirement need not exist. We instead introduce the weaker notion of collusion constrained equilibrium. This allows groups to randomize between alternatives to which they are not indifferent in certain razor's edge cases where slight perturbations of group beliefs change the set of incentive compatible plans in a discontinuous way. Collusion constrained equilibria exist and are a subset of the correlated equilibria of the underlying game. We examine four perturbations of the underlying game. In each case we show that equilibria in which groups choose the best alternative exist and that limits of these equilibria lead to collusion constrained equilibria. We also show that for a broadest class of perturbations every collusion constrained equilibrium arises as such a limit. We give an application to a voter participation game showing how collusion constraints may be socially costly. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

During the recent sales of UMTS licenses in Europe some countries used auctions while others resorted to so-called Beauty Contests. There seems to be a wide consensus among economists that in these and other contexts like privatisation an auction is the better selling mechanism. However, why exactly an auction should be preferred is unclear. Here we present an argument why beauty contests or negotiations might be dominated by auctions, which is closely linked to the multi dimensionality on issues involved in this process. The important assumption we make is that bidding firms do not know the preferences of the government. As a consequence, during a beauty contest participants are uncertain about the final decision of the government. This uncertainty enables firms to collude.