Collusion and the Incentives for Information Sharing

Abstract

Two steps are required for firms collusively to restrict output in stochastic markets. Firms must homogenize their market estimates by pooling information and they must cooperatively allocate production levels. In this article I examine the incentives for firms to share private information about a stochastic market. I show that there is never a mutual incentive for all firms in an industry to share unless they may cooperate on strategy once information has been shared. This situation is unfortunate, as society's welfare is maximized only when firms share information, but act competitively.