How can information sharing facilitate collusion?

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One of the main factors that facilitate collusion is information exchange between the various firms in collusive agreement. Oligopolies employ various cooperative strategies one of which is information exchange to create and maintain cartels. Providing sufficient information to other partners in the collusive arrangement that compliance is easily ascertained.

Information exchange can facilitate cartels or promote efficiency. One affirm can convince rivals that its not trying to steal customers through a price discount is to announce its identity of its new customers and the price and quantity terms offered. The firm makes this announcement so that when a customer shifts supplier, a price war is not triggered by rivals who believe incorrectly that the shift was due to a lowered price. Another method of conveying information is disseminating publicly what the firm’s actions can coordinate with firm’s strategy

There may also be legitimate efficiency reasons for industry members to exchange information. When a centralized market doesn’t exist, disseminating price information can improve market efficiency. Moreover firms can monitor their own efficiency better if they can compare their cost to those of other firms

Some examples of information sharing are




UK Tractor information exchange

“The Exchange restricts competition because it creates a degree of market transparency between the suppliers in a highly concentrated market which is likely to destroy what hidden competition there remains between the suppliers…” Commission Decision 1

“…it also restricts competition between members and non-members…”



Another example is “The Hardwood case”

A group of lumber mills were accused of violating the Sherman act. These producers ran the American Hardwood Manufacturers Association, which under their Open competition plan collected and disseminated price and production information. The number of mills in the industry was large- about 000 mills in 0 states. Participation was voluntary. Although monitoring output and prices can facilitate collusion, collusion can be difficult with such a large number of firms in the industry. Even though information sharing arrangements are particularly suspect when the number of firms in the industry is small enough to make collusion likely, the supreme court violated this and information dissemination was ceased.



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