Possibility Of Collusion Research Articles

Using List Prices to Collude or to Compete?

Abstract Collusion is deemed unlikely in wholesale markets where upstream suppliers and intermediate buyers privately negotiate discounts off list prices and sales quotas are unfeasible. However, many wholesale markets include both small and large buyers who compete in the retail market. We study the role of publicly announced list prices in this wholesale-retail setting, whether suppliers collude or compete. When suppliers collude, public announcements of list prices extend the possibility of collusion from small to large buyers (the multi-buyer contact effect). When suppliers compete, these announcements provide them with commitment to negotiate better terms with large buyers (the commitment effect).

Insourcing versus outsourcing in a vertical structure

AbstractWe study an agency model with vertical hierarchy—the principal, the prime‐agent and the subagent. The principal faces a project that needs both agents' services. Due to costly communication, the principal receives a report only from the prime‐agent, who receives a report from the subagent. The principal can directly incentivize each agent by setting individual transfers (insourcing), or sets only one overall transfer to an independent organization in which the prime‐agent hires the subagent (outsourcing). We show that insourcing is always optimal when the principal can perfectly process the prime‐agent's report. When the principal's information process is limited, however, outsourcing can be the prevailing mode of operation. In addition, insourcing under limited information process is prone to collusion between the agents, whereas no possibility of collusion arises with outsourcing.

Investment network and stock’s systemic risk contribution: Evidence from China

In this paper, we investigated the effect of network structures on stock’s systemic risk contribution, which measures the connection characteristics of investment network from different aspects. Firstly, we find that network centrality increases systemic risk contribution, and empirical results hold even after controlling for other factors and are also robust to alternate measures. Secondly, this paper further proposes two possible explanations. Specifically, investment network connection could increase the possibility of collusion with firms, facilitate the relevant institutional investors to hollow out the listed company, and firms at the center of network can amplify the sentiment of market participants through the generation and dissemination of information, thereby increasing stock’s systemic risk contribution. Besides, economic policy uncertainty (EPU) could strengthen the positive effect of network centrality on stock’s systemic risk contribution. Finally, we document that other important network features (including structural holes, clustering coefficients, and core-periphery structure) can also increase stock’s systemic risk contribution.

Asymmetric information, capacity constraint and segmentation in credit markets

PurposeThe purpose of this study is to propose a model of competition between a formal lender (bank) and an informal lender (moneylender) with informational asymmetry between these two lenders. Further, the authors introduce capacity constraint on the lending capacity of the moneylender and assume that borrowers differ in risk and wealth.Design/methodology/approachThe solution concept of Nash equilibrium has been used to derive the optimal strategies of the lenders.FindingsThe equilibrium strategies in most of the results depend on the difference between the expected returns from risky and safe projects where the risky project has higher expected returns. The credit market is segmented in terms of risk and wealth levels. Rationing of poor safe borrowers from the credit market is inevitable when the moneylender's capacity is sufficiently small, suggesting a low-income trap for them. Further, when moneylender has capacity constraint of some form, a zero-profit outcome is never a Nash equilibrium outcome.Research limitations/implicationsThere is a possibility of collusion between the lenders. However, the authors do not derive all possible outcomes under capacity constraintPractical implicationsWhen the informal lender has limited capacity, competition between formal and informal lenders may not alleviate credit rationing, instead aggravate the problem. Thus, the government should devise policies to ensure credit availability to resource poor householdsOriginality/valueWhile the literature models strategic interaction between lenders under the assumption of zero-profit (Bertrand Paradox) condition, this study shows that zero profit is not the only outcome under such a set-up. Also, in presence of capacity constraint of the moneylender, a zero-profit outcome is never a Nash equilibrium outcome for the lenders. There is an optimal contract at which the lenders differentiate in terms of repayment and collateral and earn positive profits under certain conditions.

Online hybrid Dutch auction approach for selling toxic assets under asymmetric bidders and the possibility of collusion

The COVID-19 pandemic-related economic recession causes a noticeable risk to banks with a substantial increase in toxic assets, including non-performing loans (NPLs). Despite the downsides, the pandemic is accelerating the spread of e-commerce. The best and most effective solution for resolving toxic assets would be a well-designed auction. Due to the fact, this represents a significant opportunity to tackle the next wave of NPLs via e-auctions. This study aims to model, for the first time, the Hybrid Dutch Auction (HDA) for online selling of NPLs. The HDA includes Dutch, Sealed-bid, and Best bid stages, and their equilibria are derived via backward induction. Theoretically and with a simulation, the study compares the HDA with the Amsterdam, the optimal auction, and the first-price and English auctions in symmetric and asymmetric environments. The results indicate that the HDA outperforms the other formats under different competition levels and the possibility of collusion.

THE APPLICATION OF INVENTORY ACCOUNTING INFORMATION SYSTEMS AT MANUFACTURING ENTERPRISES

Accounting Information System for material inventory is a very important part for manufacturing companies to carry out supervision in order to avoid risks during the production process. Internal control over material inventory is expected to be able to reduce the possibility of collusion, human error and various other frauds on material inventory. To avoid this, it is necessary to know the internal control system for raw material inventory. Every activity that involves the inventory of materials must be guided by standard operating work procedures attached to an adequate internal control system. All management and employees of manufacturing companies have roles and responsibilities in improving the quality and implementation of the internal control system, as well as the supervisory function.

Collusion in capacity under irreversible investment

In the usual theory of collusion, the possibility of collusion increases with the discount factor. The firm’s incentive to deviate is short term: the firm increases its immediate profit but reduces its future profits due to how competitors will react. This paper shows that this result is no longer valid when firms require investment to increase their production and that investment is, at least partially, irreversible. In that case, a firm deviating from a collusive agreement increases its capacity of production, preempting its competitor, and may obtain a dominant position on the market. A higher discount rate makes preemption more profitable, and thus collusion harder to sustain.

Monitoring and incentives under multiple-bank lending: The role of collusive threats

We examine interactions between multiple bank-loan officer-borrower hierarchies. Possibility of collusion between the borrower and the loan officer(s) in charge of monitoring shapes incentives for the loan officers. When ‘borrower quality is low’, collusive threats induce over-monitoring in a collusion-free equilibrium, whereas for high borrower quality, monitoring is at its non-delegation level—an outcome akin to vertical integration. Under multiple-bank lending, delegation contracts may solve the free-riding problem in monitoring, and lead to more intense monitoring relative to single-bank lending. This is because collusive threats make monitoring efforts strategic complements because of a novel ‘rent-jamming’ effect—a hitherto unexplored effect of multiple-bank lending. We further show that a bank may decide not to employ a monitor and free-ride on the information gathered by the loan officer of the other bank, which in turn provides a new rationale for syndicated lending based on collusive threats. Moreover, consistent with recent empirical evidence, our analysis implies that bank monitoring behaves counter-cyclically.

Secure Encapsulation Schemes Using Key Recovery System in IoMT Environments.

Recently, as Internet of Things systems have been introduced to facilitate diagnosis and treatment in healthcare and medical environments, there are many issues concerning threats to these systems’ security. For instance, if a key used for encryption is lost or corrupted, then ciphertexts produced with this key cannot be decrypted any more. Hence, this paper presents two schemes for key recovery systems that can recover the lost or the corrupted keys of an Internet of Medical Things. In our proposal, when the key used for the ciphertext is needed, this key is obtained from a Key Recovery Field present in the cyphertext. Thus, the recovered key will allow decrypting the ciphertext. However, there are threats to this proposal, including the case of the Key Recovery Field being forged or altered by a malicious user and the possibility of collusion among participating entities (Medical Institution, Key Recovery Auditor, and Key Recovery Center) which can interpret the Key Recovery Field and abuse their authority to gain access to the data. To prevent these threats, two schemes are proposed. The first one enhances the security of a multi-agent key recovery system by providing the Key Recovery Field with efficient integrity and non-repudiation functions, and the second one provides a proxy re-encryption function resistant to collusion attacks against the key recovery system.

Information Disclosure through Technology Licensing

We show that even if information transmission through an honest outside agency is not possible due to the possibility of collusion between the firms and the outside agency, information transmission is still possible through technology licensing. However, unlike the case of a cost-free honest outside agency, where information transmission always occurs under a quantity setting oligopoly, information transmission through licensing does not always occur.

Efficient collusion resistant multi-secret image sharing

Multi-secret image sharing techniques (MSS) extend the secret image sharing schemes. The paper reports a novel MSS scheme designed to be collusion resistant. It starts with a brief introduction of the concept thereafter discussing the related works in the domain. Security is an implicit requirement for MSS techniques. There should be no possibility of collusion among the shareholders. No less than k shareholders for (k, n) MSS scheme should be having even a slight view of the secret from their shares, n being the total number of shareholders. The paper reviews and highlights the security issues like possibility of collusion, randomness issues or robustness against tampering attack in the state-of-the-art works. It proposes a new (n, n) MSS scheme in order to rectify the issues. The algorithm encrypts N different secret images to generate N noisy share images. It resolves the existing problems in a secure, and time efficient manner. A range of experiments specifically time complexity, noise, tampering, collusion and histogram analysis are performed for rigorous security analysis. The results, thus obtained indicated that the algorithm is efficient and preserves the security requirements in a much better way than the existing MSS schemes.

Multilevel optimal managerial incentives and audit fees to limit earnings management practices

The main objective of this study is to design an optimal managerial compensation scheme and optimal auditor fees to counter income-increasing earnings management behavior. This study draws on game theory with three players: the shareholders, managers and auditors. It considers the possibility of collusion between the manager and auditor and analyzes the different scenarios that may exist between the three players. The results of our study prove that it is possible to establish an optimal managerial compensation contract and optimal auditor fees which will limit earnings management manipulation and guarantee high audit quality. We found that the optimal managerial compensation scheme depends on the firm situation. Moreover, we illustrated how the auditor is motivated by improving audit effort in all possible scenarios. This paper can be considered a tentative effort to provide systematic evidence for designing optimal contracts that align divergent interests between managers and shareholders.

Collusive Incentives in Markets with Differentiated Products

This paper proposes a generalized framework for the analysis of collusion in Bertrand oligopoly markets with possibly differentiated products and asymmetric cost structures. We first study how product differentiation interacts with the intensity of collusion (i.e., the cartel’s proximity to the industry profit frontier) among symmetric firms, determining both pricing in the deviation phase from the collusive path and the penal codes available to firms. We then clarify under what conditions collusion is sustained. The second part introduces the relation between product differentiation and cost asymmetry, focusing on the case of collusion at the profit frontier. Two alternative forms in the firms’ cost structure are proposed. Whether such a cost asymmetry ultimately facilitates, or hampers, or even excludes the possibility of collusion at different levels of product differentiation depends, first, on the form of cost asymmetry between firms (homogeneous vs. heterogeneous input) and, second, on the penal code used by firms as a function of the demand variation.

Is multimarket contact an antitrust concern? A case of China’s airline market

Abstract When firms meet in more than one market, it is generally regarded that the possibility of collusion will increase because of mutual interdependence (or mutual forbearance). Mutual forbearance is tacit collusion that directly results from familiarity and deterrence. This paper examines the effect of multimarket contact on airline prices in the Chinese domestic airline market where private and low-cost carriers have been thriving and high-speed rail services growing quickly in the last few years. We find strong evidence supporting the mutual forbearance hypothesis in high revenue markets. We also find that the collusive effect due to increasing multimarket contact is insignificant within the same airline group, whereas multimarket contact between airlines in different airline groups triggers higher airfares.

Multimarket Contact Under Imperfect Monitoring

It is well known that the presence of imperfect monitoring limits the possibility of making efficient agreements. When firms interact repeatedly in multiple markets, however, we show that noisy observations may improve the possibility of collusion. When observation is noisy in at least one market, we find a novel spillover effect that enhances firms' ability to sustain collusive outcomes. Moreover, this spillover effect is present even if firms and markets are identical, and collusion cannot be sustained in any single market; this stands in contrast to a key finding of Bernheim and Whinston (1990). This result suggests that multimarket contact can be more harmful to competition in markets in which there is only noisy observations about rivals' actions. Our finding agrees with empirical studies and has policy implications for multimarket contact.

Analysis of Management Collusive Decisions on the World Oil Market

The article examines the issue of the advantage and key conditions of collusion between the major oil exporting countries on the world oil market. This issue is explored in the paper within the framework of the concepts of stochastic cooperative game theory and the theory of industrial organisation. Namely, the concepts of game theory correspond to the conflicting interests of collusion participants. Next, the possibility of collusion between market players is considered and resolved using the theory of cooperative games. Stochastic methods of constructing and investigating the characteristic function of a cooperative game help to take into account the high volatility of the oil market. Further, the Cournot model of the theory of industrial organisation describes the strategic management of production volumes to maximize profits. The Stackelberg model takes into account the incentives to collude through the emergence of an industry leader, who first announces his management strategies. Based on these methodologies, the paper concludes that the collusion for its participants is beneficial, and the equilibrium levels of quotas for oil extraction are found.

Corruption and competition among bureaucrats: An experimental study

We use a laboratory experiment to investigate how the introduction of competition between public officials for the provision of a government service affects extortionary corruption, i.e., the demands of harassment bribes. We examine transactions that are likely to be one-shot, such as the delivery of a driver's license, and transactions that require frequent interactions between the parties and therefore allow for reputation building, such as yearly renewals of building permits. Finally, we examine officials’ ability to collude by communicating before setting their bribe demands. We find that introducing competition significantly reduces corruption both in settings characterized by one-shot and by repeated interactions between citizens and officials. While the possibility of collusion lowers the effectiveness of competition, officials are unable to sustain collusion in the long run.

The Value of Delegated Quality Control

This paper studies the case in which a firm delegates quality control to an independent monitor. In a repeated game, consumers’ trust provides incentives to acquire information about whether the good is defective, and withhold defective goods from sale. If third‐party reports are observable to consumers, delegation lessens the first and dispenses with the second moral hazard concern but also creates agency costs. Internal quality control is optimal only if trades are sufficiently frequent and consumer information is sufficiently precise. This result holds in the presence of the possibility of collusion, fully non‐verifiable presale information, and economies of scale in external quality control.

The Industrial Organization of Corruption: Monopoly, Competition and Collusion

We experimentally investigate how the introduction of competition between public officials for the provision of a given license affects extortionary corruption, i.e., the demands of harassment bribes. We examine transactions that are likely to be one-shot, such as the delivery of a driver's license, and transactions that require frequent interactions between the parties and therefore allow for reputation building, such as yearly renewals of building permits. Finally, we examine officials' ability to collude by communicating before setting their bribe demands. We find that introducing competition significantly reduces corruption both in settings characterized by one-shot and by repeated interactions between citizens and officials. While the possibility of collusion lowers the effectiveness of competition, officials are unable to sustain collusion in the long run.

An Application of a Revealed Preference Test of the Cournot Model to a Retail Electricity Market: Evidence from Japan

This article investigates whether the Cournot model of imperfect competition holds true in the Japanese retail electricity market, using monthly data over the period 2005–2010. One of the concerns about a retail electricity market that is open to competition is the collusive behavior of some suppliers, which leads to a substantial loss of economic efficiency. A revealed preference test of the Cournot model is conducted, using market price and firm output data, as in Carvajal et al. (2013). This test enables regulators to investigate the possibility of collusive behavior among firms in the industry. The application of the revealed preference test to the retail electricity market in Japan indicates that the possibility of collusive behavior among the incumbents cannot be excluded. It also implies that market size and firm size affect the possibility of collusion.