Collusion Between Supply Chains under Asymmetric Information*

Abstract

This paper considers an infinitely repeated competition between manufacturer-retailer supply chains. In every period, retailers privately observe the demand and manufacturers pay retailers ‘information rents’. I study collusive equilibria between the supply chains that may or may not involve the retailers. I find that including forward-looking retailers in the collusive scheme may facilitate or hinder collusion, depending on the likelihood of a high demand and the gap between a high and a low demand. Moreover, collusion on monopoly profits can be easier or more difficult to implement than collusion on upstream profits.