Internal decision-making rules and collusion

Abstract

We study the impact of internal decision-making structures on the stability of collusive agreements. To this end, we use a three-firm spatial competition model where two firms belong to the same holding company. The holding company can decide to set prices itself or to delegate this decision to its local units. It is shown that when transportation costs are high, collusion is more stable under delegation. Furthermore, collusion with maximum prices is more profitable if price setting is delegated to the local units. Profitability is reversed for low discount factors.