Market collusion with joint harm and liability sharing

Abstract

When it is impossible to identify ex post the producer of a product causing harm, or the damage caused is indivisible although caused by multiple injurers, courts must apportion the total damage among tortfeasors. In this model we examine how such liability sharing rules affect the likelihood of tacit collusion. For this we use a standard Cournot oligopoly model where firms are collectively held liable for joint harm inflicted on third parties. With repeated market interaction and grim strategies, we investigate the sustainability of collusion to derive some policy implications.