Market Sharing Agreements and Collusive Networks

Abstract

This paper analyzes the formation of market sharing agreements among firms in oligopolistic markets and procurement auctions. The set of market sharing agreements defines a collusive network, and the paper provides a complete characterization of stable and efficient collusive networks when firms and markets are symmetric. Efficient networks are regular networks, where firms have the same number of market sharing agreements. Stable networks are formed of complete alliances, of different sizes, larger than a minimal threshold. Typically, stable networks display fewer market sharing agreements than the optimal network for the industry and more market sharing agreements than the socially optimal network. When firms or markets are asymmetric, incomplete alliances can form in stable networks, and stable networks may be underconnected with respect to the social optimum.