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Collusion and rent-seeking

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Conclusions

This paper has explored the possibilities for profitable collusion in rent-seeking games. Anticipated collusion is only profitable for coalitions that approach the size of the grand coalition, while unanticipated collusion is always profitable. By reducing the rent-seeking expenditures of the colluding firms, collusion bestows an external benefit on non-colluding firms. Economies of scale in rent-seeking increase the profitability of collusion, while diseconomies of scale reduce the attractiveness of collusion. When 1 of 3 firms enjoys an incumbency advantage, the total gains from collusion fall as the incumbency advantage rises. Furthermore, 2-firm collusion is more profitable to the colluding coalition when the incumbent colludes with a non-incumbent than when the two non-incumbents collude, whether or not the collusion is anticipated. In all circumstances, unanticipated collusion is more profitable to the colluding coalition than perfectly anticipated collusion. Colluding firms may therefore have an incentive to conceal their collusive activity, even when collusion is legal.

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Authors and Affiliations

  1. Department of Economics, George Mason University, 4400 University Drive, 22030-4444, Fairfax, VA

    Michael Alexeev

  2. Department of Economics, Duke University, 27706, Durham, NC

    Jim Leitzel

Authors
  1. Michael Alexeev
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  2. Jim Leitzel
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Additional information

We would like to thank Joseph E. Harrington, Jr., for helpful comments. All errors remain the responsibility of the authors.

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Alexeev, M., Leitzel, J. Collusion and rent-seeking. Public Choice 69, 241–252 (1991). https://doi.org/10.1007/BF00123862

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  • DOI: https://doi.org/10.1007/BF00123862

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