Skip to main content
SpringerLink
Log in

Non-cooperative Tacit Collusion, Complementary Bidding and Incumbency Premium

  • Published:
Review of Industrial Organization Aims and scope Submit manuscript

Abstract

This article focuses on testing the intuitive idea of Folk Theorem in a repeated game, and the existence of complementary bidding and incumbency premium. Through careful analysis of bidding behaviors in the Dallas-Ft. Worth (DFW) school-milk industry, I find that cooperation based on rationality and repetition satisfies the conditions for a kind of Folk Theorem. The data also strongly suggest that all major milk processors are engaged in complementary bidding to allocate consumers geographically and command statistically significant incumbency premia in their incumbent districts. Even if the equilibrium outcomes are largely non-cooperative, some pieces of circumstantial evidence uncovered in this school-milk market study may be sufficiently convincing to enable dispensing with evidence of actual communication.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Fudenberg, D., and J. Tirole (1992) Game Theory. Cambridge MA: MIT Press.

    Google Scholar 

  • Green, E. J., and R. H. Porter (1984) 'Noncooperative Collusion under Imperfect Price Information', Econometrica, 52, 87–100.

    Google Scholar 

  • Hay, G., and D. Kelly (1974) 'An Empirical Survey of Price-Fixing Conspiracies', Journal of Law and Economics, 13, 13–38.

    Google Scholar 

  • Hendricks, Kenneth, and Robert H. Porter (1989) 'Collusion in Auctions', Annales d'Economie et de Statistique, 15/16, 217–230.

    Google Scholar 

  • Hewitt, C., J. McClave, and D. Sibley (1993) 'Incumbency and Bidding Behavior in the Dallas-Ft.Worth School Milk Market', Mimeo. Austin, TX: University of Texas at Austin.

    Google Scholar 

  • Kreps, D., P. Milgrom, J. Roberts, and R. Wilson (1982) 'Rational Cooperation in the Finitely Repeated Prisoners' Dilemma', Journal of Economic Theory, 27, 245–252.

    Google Scholar 

  • Lanzillotti, R. (1996) 'The Great School Milk Conspiracies of 1980s', Review of Industrial Organization, 11, 413–458.

    Google Scholar 

  • Lee, I. K. (1996) 'Strategic Bidding Behavior and Cyclical Properties of Price-Cost Margins: Empirical Tests of Game Theoretic Predictions', Ph.D. Dissertation. Austin, TX: University of Texas at Austin.

    Google Scholar 

  • Pesendorfer, M. (1994a) 'A Study of Cartel Agreements in First Price Auction', Part I: 'Cartel Agreements', Mimeo. Evanston, IL: Northwestern University.

    Google Scholar 

  • Pesendorfer, M. (1994b) 'A Study of Cartel Agreements in First Price Auction', Part II: 'Cartel Bidding Behavior', Mimeo. Evanston, IL: Northwestern University.

    Google Scholar 

  • Posner, R. (1976) Antitrust Law: An Economic Perspective. Chicago, IL: The University of Chicago Press.

    Google Scholar 

  • Radner, R. (1980) 'Collusive Behavior in Noncooperative Epsilon-Equilibria of Oligopolies with Long but Finite Lives', Journal of Economic Theory, 22, 136–154.

    Google Scholar 

  • Radner, R. (1986) 'Repeated Partnership Game with Imperfect Monitoring and no Discounting', Review of Economic Studies, 53, 43–57.

    Google Scholar 

  • Schrer, F., and D. Ross (1990) Industrial Market Structure and Economic Performance, 3rd edn. Boston, MA: Houghton Mifflin.

    Google Scholar 

  • Selten, Reinhard (1978) 'The Chain Store Paradox', Theory and Decision, 9, 127–159.

    Google Scholar 

  • Selten, Reinhard, and R. Stoecker (1986) 'End Behavior of Finite Prisoners' Dilemma Supergames: A Learning Theory Approach', Journal of Economic Behavior and Organization, 7, 47–70.

    Google Scholar 

  • Stigler, G. (1964) 'A Theory of Oligopoly', Journal of Political Economy, 72, 44–61.

    Google Scholar 

  • Tirole, J. (1990) The Theory of Industrial Organization. Cambridge MA: MIT Press.

    Google Scholar 

  • Turner, D. (1962) 'The Definition of Agreement under the Sherman Act: Conscious Parallelism and Refusals to Deal', Harvard Law Review, 75, 655–706.

    Google Scholar 

  • U.S. General Accounting office (1990) General Accounting Office Report to House Judiciary Committee Chairman on Charges in Antitrust Enforcement Polices and Activities of the Justice Department.

  • Zona, J. Douglas (1986) 'Bid-Rigging and the Competitive Bidding Process: Theory and Evidence', Ph.D. dissertation. New York: State University of New York at Stony Brook.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Samsung Economic Research Institute, Kukje Building, 191, Hangangro 2-Ka, Yongsan-Ku, Seoul, Korea

    In K. Lee

Authors
  1. In K. Lee
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Lee, I.K. Non-cooperative Tacit Collusion, Complementary Bidding and Incumbency Premium. Review of Industrial Organization 15, 115–134 (1999). https://doi.org/10.1023/A:1007705126893

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/A:1007705126893

Search

Navigation